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Chesapeake: Barnett to Move Aside for Haynesville by 2015

June 1, 2009
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The Haynesville Shale will surpass the Barnett Shale to become the largest source of domestic natural gas production by 2014 or 2015, only to be eclipsed within a few years by the Marcellus Shale, Chesapeake Energy Corp. CEO Aubrey McClendon said Thursday.

Speaking to an audience at the Deutsche Bank Securities Energy & Utilities Conference in Miami Beach, McClendon also said he thinks his company will "repass" BP plc by the end of the year to again be the largest U.S. gas producer. Chesapeake, he said, is drilling about one out of every nine gas wells onshore in the United States.

Chesapeake touted its gas discovery in the Haynesville Shale a little more than a year ago (see NGI, March 31, 2008), but McClendon said it already is a world-class play. The company has an estimated 470,000 net acres in the play, mostly in northwestern Louisiana, but with some in East Texas as well.

"We sit on declared reserves of 11.9 Tcfe using a $3.31/Mcf gas price," he told the audience. "If gas is $5.71 by the end of the year, if not before, we'll be at 12.6 Tcfe."

Chesapeake holds leases on about 1.3 million acres in the Marcellus Shale, 470,000 acres in the Haynesville Shale, 310,000 acres in the Barnett Shale and 440,000 acres in the Fayetteville Shale. By the end of 2010, Chesapeake is forecasting its Haynesville Shale reserves could reach close to 16 Tcfe, McClendon said.

"The Haynesville Shale will pass the Barnett Shale by 2014, 2015 to be the largest producer of gas in the country, only to be exceeded by the Marcellus after 2020," said McClendon.

The Barnett Shale, which is spread across a wide swath of North and Central Texas, is the largest unconventional source of gas in the nation. It yielded about 1.4 Tcf in 2008, which was about 5.3% of total U.S. production, according to Waco, TX-based the Perryman Group. However, the Barnett is in decline and will yield to the Haynesville play within five or six years, said McClendon.

Chesapeake's tier one development, located on the Louisiana side of the Haynesville Shale, holds reserves "in excess of 8 Bcfe per well," he said. The tier two wells, mostly in Texas, hold an estimated 3-4 Bcfe per well.

"By the end of the year we will be producing a net 300 MMcf/d of gas," said the CEO. Chesapeake has 23 rigs running in the play today; by the end of the year it will be at 34-35 rigs, or on average, 28 rigs in 2009.

Meanwhile, Chesapeake's leasehold in the Appalachian Basin, where the Marcellus Shale is located, is promising, but there are "challenges," said McClendon.

"The Marcellus is not a small company play," he said. "It requires a scale that is really beneficial to larger companies. We have lots of boots on the ground for regulatory and environmental and legal issues.

"For instance, in New York, you cannot drill horizontal wells in the Marcellus today. That moratorium may be lifted by fall, but not necessarily. We are engaged in that discussion every day..." Chesapeake expects to have 20 rigs running across its Marcellus leasehold by the end of the year.

"The biggest surprise in the Marcellus is that there is something different about the decline curves," McClendon noted. "You've maybe heard that from other [producers], but it's true. The declines here are definitely different and less rapid than we would have expected."

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