Integrated energy company Chesapeake Energy Corporation (CHK) announced that its Anadarko Basin’s Buffalo Creek 1-17 well has generated a record gross production of more than 60 billion cubic feet of natural gas.
The company, holding an 82.6% working interest and a 65.8% net revenue interest, began operating the well in May 2002.
The well, located in Beckham County, was drilled to a total depth of approximately 21,000 feet at the Cunningham Sand of the Deep Springer formation. During the first two years of operation, the well recorded an average of about 41 million cubic feet of natural gas per day, while it is still producing about 8 million cubic feet of gas a day.
Chesapeake incurred total spending of $8.5 million to drill and complete the well, while total gross revenue was approximately $320 million, of which approximately $65 million was paid to royalty owners and approximately $15 million advanced as state severance tax.
Management stated that Buffalo Creek 1-17 is only the sixth well to hit such a record output level. The company currently holds operational interest in four of six such natural gas wells ever drilled in Oklahoma. With already three operational rigs in the basin, Chesapeake targets to spud at least 185 wells in the 75,000 net acres of the Deep Springer leasehold, going forward.
Oklahoma-based Chesapeake is engaged in acquisition, development, and production of onshore U.S. natural gas resources. The company has also demonstrated considerable drilling prowess, capitalizing on its extensive inventory of acquired undeveloped acreage to make substantial reserve additions.
We believe that Chesapeake’s focus on shale gas plays will render the momentum to monetize these assets more effectively and efficiently, thereby boosting returns. Given its industry leading growth profile, competitive cost structure and management’s track record of outperformance, Chesapeake is more advantageously placed than many of its peers such as BP plc (BP) and ConocoPhillips (COP). We like the company’s plans to invest further in oil related drilling over the next two years.
However, we maintain our long-term Neural rating on the stock, considering Chesapeake’s highly gas-weighted reserves/production profile and exposure to the inherently cyclical and volatile oil and gas fundamentals.
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