Thursday, May 24, 2012

Natural Gas: "Chesapeake Raises Big Bet in Ohio" (CHK)

From the Wall Street Journal:
Aubrey McClendon, CEO of Chesapeake Energy Corp., CHK -2.92% once described oil buried in a layer of rock that stretches from the outskirts of Cleveland to West Virginia as "the biggest thing to hit Ohio since the plow."

Mr. McClendon bet big on that new oil field, the Utica Shale, paying billions of dollars over the last two years for drilling rights to 1.3 million acres of it, or about 5% of Ohio's land area.

Now, Chesapeake is raising its bet—ramping up drilling on a promising but unproven oil field, at a time when the embattled natural-gas giant is under financial stress and facing heightened scrutiny from investors.
Battered by the lowest natural-gas prices in a decade, Chesapeake is selling off some of its most lucrative assets and taking out increasingly expensive loans in a bid to transform itself into an oil power. The cash-strapped company, whose stock market valuation is under $10 billion, has more than $13 billion in debt on its balance sheet and total obligations of close to $24 billion, ratings agencies say.

Key to its ambition is the Utica, which Ohio officials estimate holds 1.3 billion to 5.5 billion barrels of oil. The Utica, which spans parts of five states, often draws comparisons to the huge Eagle Ford Shale in Texas, which could hold 3.4 billion barrels of oil, according to the U.S. Energy Information Administration. On Tuesday, a Chesapeake executive told an industry conference in Austin that the Utica could generate a higher rate of return than any of Chesapeake's other properties.

But analysts say that relatively little is known about the true potential of the Utica. Chesapeake has only released results from nine of the 59 wells it has drilled in the Utica, and none of the nine have been in operation for long. Chesapeake says that oil made up less than a third of its average peak production from eight of the wells, with natural gas accounting for half and the rest coming from liquid gases like ethane and propane.

The limited data the company has released "fail to wow," analysts at Sanford C. Bernstein & Co. wrote last month....MUCH MORE
See also:
Oct. 20, 2011 
Oil and Gas Boom in Ohio (CHK; APC; CNX; HES)
May 14, 2012 
Dear Natural Gas Bulls: Chesapeake Is NOT Cutting Back on Drilling in the Utica Shale (CHK)