PITTSBURGH—Today’s Chesapeake Energy Corp. (CHK) is far different than the Chesapeake the industry knew prior to 2013. Where once its business philosophy could be summed up as ‘leave no acre behind,’ today the Oklahoma City-based operator has a laser-like beam on capital efficiency. “We are looking at how to maximize the value of hydrocarbons for every dollar we spend,” said Dale Malody, vice president, Appalachia North, speaking at Hart Energy’s DUG East conference and exhibition in June.
As part of its transformation from a purely growth-focused strategy to one concentrated on operational efficiency and financial discipline, Chesapeake has dramatically improved its balance sheet. In 2014, it reduced debt, spun off its oilfield services unit and sold its southern Marcellus assets. It is now a surgical and targeted acquirer focused on financial discipline, Malody said. And its operational turnaround has been stunning: In 2014 the company had one-third the rig count and half the capital budget as in the prior year, but it drilled the same number of wells.
The Appalachian Basin shale plays are foundational assets for the new Chesapeake, accounting for 40% of the firm’s total production.
In the Utica, Chesapeake’s strategy can be summed up as improving capital efficiency, expanding the core of the play and optimizing its production. The company holds roughly 1 million net acres in the Utica, primarily located in eastern Ohio and spread across all hydrocarbon windows. Its production from the play is 120,000 barrels of oil equivalent per day net. From the four rigs it runs currently, the company plans to drop to two by the middle of the third quarter. That will allow Chesapeake to drill the number of wells it needs to hold its acreage.
A good example of production optimization is Chesapeake’s progress on enhanced completions. These completions, which feature longer laterals, more stages per well and customized cluster spacing, have resulted in a 20% boost to the company’s estimated ultimate recovery (EUR) per well. “This is a fundamental shift in the results from the development program,” Malody said.
In the Marcellus play, Chesapeake now holds roughly 500,000 acres in northeastern Pennsylvania’s dry gas area. It makes just under 2 billion cubic feet per day gross (Bcf/d) of gas, or 835 MMcf/d net, and it plans to keep one rig at work through year-end 2015. As in the Utica, Chesapeake’s priorities are to maintain the minimum activity required to hold acreage, continue to drive efficiencies, and to increase resources. It is executing on the latter though expansion of the traditional lower Marcellus play and also through new testing in the upper Marcellus interval, which could potentially lead to stacked pay developments.
In the lower Marcellus, enhanced completions are also leading to better results, with EUR per well rising more than 20%, increasing from 9 Bcf in 2011 to an estimated 12 Bcf per well this year. “Much like in the Utica, the operational improvements in the Marcellus have been dramatic over the last few years,” he said.
So, even with reduced budgets and fewer rigs, Chesapeake has achieved remarkable step changes in capital efficiency over the past two years. And it fully expects to stay the course in Appalachia: “We continue to drive and continue to improve,” Malody said.
Chesapeake’s efforts on operational efficiencies in the Utica play have paid off in fewer drilling days and higher penetration rates for its wells as compared to its peers, translating into lower average well costs. (Chesapeake Energy Corp. presentation, DUG East 2015)
Contact the author, Peggy Williams, at pwilliams@hartenergy.com.
Recommended Reading
TPG Adds Lebovitz as Head of Infrastructure for Climate Investing Platform
2024-02-07 - TPG Rise Climate was launched in 2021 to make investments across asset classes in climate solutions globally.
Air Products Sees $15B Hydrogen, Energy Transition Project Backlog
2024-02-07 - Pennsylvania-headquartered Air Products has eight hydrogen projects underway and is targeting an IRR of more than 10%.
NGL Growth Leads Enterprise Product Partners to Strong Fourth Quarter
2024-02-02 - Enterprise Product Partners executives are still waiting to receive final federal approval to go ahead with the company’s Sea Port Terminal Project.
Sherrill to Lead HEP’s Low Carbon Solutions Division
2024-02-06 - Richard Sherill will serve as president of Howard Energy Partners’ low carbon solutions division, while also serving on Talos Energy’s board.
Magnolia Appoints David Khani to Board
2024-02-08 - David Khani’s appointment to Magnolia Oil & Gas’ board as an independent director brings the board’s size to eight members.