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Chesapeake Eyes JVs for at Least Three More Shale Plays

Chesapeake Energy Corp. plans to sell stakes in at least three more onshore U.S. shale plays, CEO Aubrey McClendon told energy analysts Friday, and at the same time he claimed a leadership position for the company in the new natural gas age.

Chesapeake "basically changed single handedly" the natural gas market in North America, McClendon said in an earnings conference call.

"During the past 11 years Chesapeake has increased its gross operating natural gas from 1.1 Bcf/d to 5.4 Bcf/d. In doing so, we have single handedly generated almost half of the industry's growth in natural gas production." Chesapeake's gas output "grew 475% over the past decade...Collectively, the rest of the industry grew [gas output] 12% over the past decade."

The Oklahoma City-based producer Thursday announced its seventh shale-related joint venture (JV), involving a portion of its Utica Shale leasehold with an undisclosed foreign partner for an estimated $3.4 billion (see Shale Daily, Nov. 4). And, it won't be the last, said the CEO.

"We might have three JVs in 2012," McClendon said, acknowledging that partnerships are possible on its leaseholds in the Williston Basin in the Dakotas and the Mississippi Lime in Oklahoma and Kansas. In addition, "we are well on our way to 500,000 acres in another oil play that we're not ready to discuss yet. Once we drill a few wells in it, we'll have more to chat about."

A second JV also is possible in the dry gas window in the Utica; the deal announced on Thursday was in the wet gas area.

The still-to-be disclosed stealth play, said the CEO, could be a JV once the leasehold is secured. Chesapeake now has "multiple thousands" of acres and is "not in California and not in the Tuscaloosa Marine Shale," both of which have become too expensive for entry. "The vast majority of the leasehold will be wrapped up within year's end and then we'll become more chatty."

Including the Utica JV, Chesapeake in the past three years to date has secured partners to help fund its drilling program in the Haynesville, Barnett, Fayette, Marcellus, Niobrara and the Eagle Ford shales.

The new Utica partner also will be disclosed "once we complete the transaction," said McClendon. "The international partner is very large, very well respected...and the deal is very attractive to them and to us. It's a complete win-win for both companies." In time, he said, the Utica will be "proven up as the best play" in the United States.

However, he didn't want to discuss any well results because "the last time we did acreage prices doubled within weeks." Rex Energy Corp. a few days ago said it had completed a well in Butler County, PA, in the Utica formation with a 3,551-foot lateral length and 12 stages of fracture stimulation, which produced 9.2 MMcf/d over a 24-hour period.

"Rex had snappy Utica tests," said the CEO. "Well test results should begin accelerating over 2012," including some from Range Resources Corp., he added.

"So far in the Utica we've spudded 19 horizontal wells and seven are now producing. The rest are drilling and completing...waiting on production or pipelines." Ultimately, Chesapeake said the Utica is worth between $15-20 billion to the company.

Like many other onshore producers Chesapeake has been shifting its drilling from dry natural gas to oily and natural gas liquids (NGL) deposits. The company in fact expects to keep its net gas production "essentially flat" for as long as the next five years, or until prices rebound, said McClendon.

Chesapeake doesn't expect to continue its spectacular production growth. In next five years "it will be very different from now. We feel that the futures curve is pricing natural gas incorrectly...The same company that brought the gas oversupply has not decided to increase liquids production; natural gas won't increase much from here.

"If natural gas demand picks up from coal-to-gas switching, from demand growth and if LNG [liquefied natural gas] exports begin in 2015, as we believe they will, we'll grow our natural gas production to ensure U.S. gas markets remain well supplied."

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