Chesapeake Energy announced its Utica Shale acreage position in its quarterly earnings call this morning. The company has leased over 1.25 million acres in the Ohio Shale and expects the acreage could be worth $15-20 billion. The acreage position doesn’t come as a surprise as many have known they were establishing a significant position, but this is the first public comment on the size of their position.
The announcement is the prelude to a drilling boom in Ohio. After several successful wells, we’ve seen leasing activity really pick up in Eastern Ohio. Counties where oil & gas leasing has been the most competitive are Carroll County, Columbiana County, Harrison County, Jefferson County, Mahoning County, and Tuscarawas County in Ohio.
Rumors are that lease offers have climbed to $2,500 per acre. Chesapeake noted its position of 1.25 million acres had a cost basis of $1.5-2.0 billion, which equates to $1,200 to $1,600 per acre. The average Utica Shale royalty for the company is 15-17% with leases that have a primary term of 5 years, with an option to extend for 5 years. These terms are much more favorable to the oil & gas operator than companies are getting in other shale plays.
Chesapeake’s acreage expands across much of the state and is not concentrated in Eastern Ohio. Most of the acreage is prospective for liquids-rich gas, condensate, NGLs, and Utica Shale Oil production. The company compares the play to the Eagle Ford Shale, but expressed that economics and well performance is better so far on its Utica acreage compared to Chesapeake’s Eagle Ford Shale Acreage.
The Eagle Ford has created an oil boom in South Texas, so early comments suggest Ohio might quickly become a major oil and gas producing state.
Chesapeake Energy also announced it will sell a portion of its assets through a joint venture (JV) type arrangement. The JV will likely mirror similar transactions completed in the in the Haynesville Shale (Plains Exploration), Fayetteville Shale (BP), Barnett Shale (Total), Marcellus Shale (Statoil), Eagle Ford Shale (CNOOC), and Niobrara Shale (CNOOC). The latest two transactions were with the China National Offshore Oil Company (CNOOC) in the Eagle Ford and the Niobrara shales. It will be interesting to see who has to capital to pay an approximately $5 billion for a 25% interest in the play. We’ll see if the Chinese still have money to spend.
Read more about the booming shales in our Shale Play Directory.
Having achieved successful results from recent drilling activities in eastern Ohio, Chesapeake is announcing the discovery of a major new liquids-rich play in the Utica Shale. Based on its proprietary geoscientific, petrophysical and engineering research during the past two years and the results of six horizontal and nine vertical wells it has drilled, Chesapeake believes that its industry-leading 1.25 million net leasehold acres in the Utica Shale play could be worth $15 – $20 billion in increased value to the company. Chesapeake’s dataset on the Utica Shale includes approximately 2,000 well logs, full-suite petrophysical data on approximately 200 wells, 3,200 feet of proprietary core samples from nine wells and production results from three wells. As a result of its analysis, the company believes the Utica Shale will be characterized by a western oil phase, a central wet gas phase and an eastern dry gas phase and is likely most analogous, but economically superior to, the Eagle Ford Shale in South Texas.
Chesapeake is currently drilling in the Utica Shale with five operated rigs to further evaluate and develop its leasehold and anticipates increasing its rig count to eight by the end of 2011 and reaching at least a range of 16-20 rigs by year-end 2012. Also, the company believes that its leasehold position in the shale will support a drilling effort of at least 40 rigs by year-end 2014. Chesapeake is currently conducting a competitive process to monetize a portion of its Utica Shale leasehold position, which will be through an industry joint venture process or through a number of other monetization alternatives. The company anticipates completing a Utica Shale transaction in the 2011 fourth quarter.
Read the full news release at chk.com