Chesapeake Reports Liquids Production on the Rise
YOUNGSTOWN, Ohio – Chesapeake Energy Corp.'s natural gas liquids and oil production is expected to hit 250,000 barrels per day by 2015, according to a forecast from company CEO Aubrey McClendon.
In a presentation Tuesday at the Merrill Lynch 2012 Energy Conference in Miami, McClendon made the case for Chesapeake's continued aggressive shift toward oil and natural-gas liquids, while noting that pulling back from dry gas exploration should force those prices to rise over time.
"Starting from virtually no production of liquids three or four years ago, today we're the country's 11th largest U.S. liquids producer," McClendon reported.
The presentation was posted Tuesday on the company's investor relations website.
Natural gas-liquids production at Chesapeake has increased 120% over the last 24 months to 93,000 barrels per day, much of it attributed to the company's exploration of unconventional shale plays such as the Utica shale in eastern Ohio.
"We've drilled more horizontal wells than anyone else in the world," McClendon said, "and have the largest U.S. leasehold position."
In 2002, natural gas production in the United States fell flat, while energy demands grew on a consistent basis. That led to an expected increase in imported gas to meet this demand, the presentation noted.
However, by 2012, resources tapped through vast shale formations such as the Utica, Eagle Ford, Marcellus and Bakken plays have helped unlock a 100-year supply of natural gas.
McClendon noted other energy companies have ventured into these plays with success as well, and in many cases have validated Chesapeake's leasehold assets in areas such as the Utica.
The company expects to complete asset sales worth between $17 billion and $19 billion by 2013, McClendon said, in order to balance debt with production costs.
Chesapeake needs to raise cash so it can pare down $16 billion of debt to a targeted $9.5 billion, a prospect that isn't likely until next year.
"I've always approached this business with the view that it was a lot easier to fix a balance sheets than to fix bad assets," he said.
The Utica shale is ranked 20th in the world in terms of recoverable resources with possibly 38 trillion cubic feet of natural gas beneath the surface. The Marcellus shale, which is buried beneath most of Pennsylvania, is the second-best in the world behind the North Field in Quatar and could hold up to 500 trillion cubic feet of natural gas, according to the presentation's estimates.
Chesapeake is the largest leaseholder in the Utica, with 1.3 million acres.
"Shale gas is the answer," McClendon said. "It's a complete game changer."
Still, McClendon warned that over the next 10 years, the United States is trending toward exporting $4 trillion to $5 trillion of its wealth to support foreign imported oil.
"As Boone Pickens is fond of saying, we're engaged right now in continuing the biggest wealth transfer the world has ever known," McClendon said. "Right now it's about $1 million a minute."
The only way to curb this dependence is for the United States to increase its reliance on natural gas as a base fuel that's produced in America, McClendon said.
Among the key markets to drive this demand are the transportation and electrical-power industries.
Transportation companies that are able to convert their fleets from diesel fuel to compressed natural gas could reduce their use of petroleum and reduce costs significantly.
And, abandoning coal as the main base fuel to supply electric power plants and converting these plants to natural gas-power presents another opportunity for the market, McClendon said.
It’s estimated that 75,000 to 90,000 megawatts of new natural gas-fired capacity would be added by 2015.
Chesapeake is the most prolific driller in the Utica shale with 134 wells drilled there, most of which are in Carroll County. Of those wells, 32 are now producing.
McClendon told analysts during a conference call Nov. 2 that the Utica is among the best target areas for natural gas exploration in the United States.
He specifically singled out the stretch of Ohio starting in Columbiana County and moving south into Carroll and Harrison counties.
"I think we have a really good handle on where the core of the core is," McClendon said. "I feel like we own it."
Copyright 2012 The Business Journal, Youngstown, Ohio.