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CEO: More to Come in Chesapeake Portfolio Shift

Chesapeake Energy Corp.'s shift to balance its natural gas-weighted portfolio required a lot of spending last year -- an estimated $4.7 billion -- to acquire liquids-rich property, but the risky outlay already is proving its worth, CEO Aubrey McClendon said this week.

Chesapeake's chief spoke Monday at the Independent Petroleum Association of America's Oil & Gas Investment Symposium in New York City (see Shale Daily, April 12).

As onshore producers transition to oils and liquids from gas, the "global industry is transforming too," McClendon said. "The U.S. today has some of the profitable oil plays in the world, something that hasn't been true for 50 years. The global industry is bringing enormous sums of money into the U.S., which is good news for companies like ourselves..."

But it's been an expensive strategy shift. In 2009 McClendon and his management team "looked into the future and saw two significant emerging game changers," the emerging ability to find and develop new unconventional oil and natural gas liquids resources, and the "persistent and widening value gap" between world oil prices and U.S. natural gas prices.

To that end Chesapeake opened its pocketbook and acquired more debt. The purchases were concentrated through the middle of the United States and included the:

"Chesapeake has built its unrisked liquids resource potential to 15 billion boe," said McClendon. And the company is still working on the transformation, with "more monetizations" expected to be announced this year.

The payoff, he said, should result in year-end 2011 production of 3.065 Bcfe/d, and 2012 output by year-end of 3.56 Bcfe/d. The "liquids mix" also is to be 20-25% in 2012 from 11% in 2010.

"We've seen tremendous benefits shifting from natural gas to liquids," he said.

By the end of 2015 the company is setting its sights on becoming a "top five oil producer," said the CEO. The company has moved from the 25th spot to the "top 15" in the past six quarters, he noted.

Chesapeake has balanced its portfolio, but don't expect it to shun gas. McClendon said that only last week the company "hit a production milestone of 6 Bcf/d gross, which means about 10% of U.S. production is from Chesapeake-operated wells."

The company still also ranked as the largest Marcellus Shale oil and gas producer during the second half of 2010, according to the Pennsylvania Department of Environmental Protection. During that period, the company produced 48.1 Bcfe from the play, which was enough to maintain its small lead over No. 2, Talisman Energy, which produced 46.4 Bcfe.

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