Chesapeake Energy Corp.’s (CHK) test wells, drilled in the Utica Shale in eastern Ohio and western Pennsylvania, showed initial success. This prompted the company to invite partners for the development of the field.
Given strong initial results from 4 of the 12 horizontal wells in the shale play, Chesapeake holds an optimistic view on the presence of hydrocarbons, such as oil and ethylene over the region.
With the current net production of 3.45 billion cubic feet of natural gas equivalent per day (comprising 95,000 barrels per day of liquid), the company plans to ramp up its net liquids production by 50%, to more than 150,000 barrels a day by the end of 2012. Additionally, by the end of 2015, it expects to boost its liquids production by 150% to more than 250,000 barrels a day.
Chesapeake also aims to enhance its rig count in the shale to 10 by the end of 2011 from its current 5. It also added that the company will be drilling 20 rigs by the end of 2012 and up to 40 by the end of 2014. We believe the company remains well positioned to capitalize the Utica Shale’s resources given its strong presence with 1.25 million net acres of leasehold that cover approximately 40% of the potentially drillable acres in the core of the play.
The Utica is a buried rock formation spreading across eight states. It stretches from Tennessee to New York, as well as parts of Canada. The formation lies roughly 3,000 to 7,000 feet beneath the Marcellus Shale play with thickness ranging between 200 feet to 400 feet across the most prospective areas of Ohio.
Most oil companies remain focused on this region as it is assumed to contain more valuable oil and gas. Companies like ExxonMobil Corporation (XOM) and Hess Corporation (HES) also claim to have stakes in the play.
Oklahoma-based Chesapeake is the second-largest producer of natural gas in the U.S., with operations focused mainly on discovering and developing unconventional natural gas and oil fields onshore in the U.S. Having access to high-quality reserves with a long shelf life proves highly beneficial for the company, especially, during the recent uncertain times when unconventional sources of energy are gaining strength worldwide.
We maintain our long-term Neutral recommendation for the company’s shares.
CHESAPEAKE ENGY (CHK): Free Stock Analysis Report
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