HOUSTON (Dow Jones Newswires), Sep. 29, 2011
Chesapeake said Wednesday that test wells drilled in the Utica Shale in eastern Ohio and western Pennsylvania showed positive results, raising shareholders' hopes that the energy firm will be able to forge a joint venture in the region soon.
Chesapeake said 12 horizontal wells it drilled in Utica Shale--a deeply buried rock formation that lies below parts of eight states, from Tennessee to New York as well as parts of Canada--achieved strong initial production of natural gas and liquid hydrocarbons, such as oil and ethylene, which fetch higher prices than natural gas.
The results are the first to show the type of resource and possible productivity of the Utica Shale, which many analysts touted as North America's next big energy find.
"I am proud to announce the achievement of these important production milestones," Chesapeake Chief Executive Aubrey McClendon said in prepared remarks.
Results from the initial wells that produced liquid hydrocarbons suggested each well recovered over 1,000 barrels of oil equivalent per day, according to financial advising firm Canaccord Genuity. Given that the average drilling costs in the area are approximately $5 million to $6 million per well, capital productivity in the Utica Shale seems to be comparable to high-quality liquid hydrocarbons development in the prolific Eagle Ford Shale in Texas, Canaccord added.
The results are encouraging, but the Utica Shale is so vast that it is too early to extrapolate the results of a dozen wells to the entire area, said Fadel Gheit, an analyst at Oppenheimer & Co.
Several oil and gas companies including ExxonMobil, Anadarko Petroleum, Hess and Devon have rushed to secure leases in the area.
Chesapeake's announcement, however, is likely to help the company to attract a partner for a joint venture for its 1.25 million Utica Shale acres. The Oklahoma City, Okla.-based company recently said it was shopping for a partner and that it may have an agreement signed as early as next month. Chesapeake's chief executive said in July that the company believes its Utica Shale acreage is worth $15 billion to $20 billion.
"The results will probably get the ball rolling on Chesapeake's much-anticipated JV," said analysts from Global Hunter Securities.
Chesapeake's shares were recently trading up 1.6% at $28.11.
The company said its plans to increase its operated rigs in the Utica Shale to 10 rigs by year-end; to 20 rigs by year-end 2012; and to 40 rigs by year-end 2014.
Chesapeake also said its overall total net production recently reached 3.45 billion cubic feet of natural gas equivalent per day, which included approximately 95,000 barrels per day of liquids production. The company said it plans to increase its net liquids production by 50%, to more than 150,000 barrels a day by the end of 2012. By the end of 2015, the company expects to increase its liquids production by 150%, to more than 250,000 barrels a day.
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