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Chesapeake Adds Cana Woodford to Sales List

Chesapeake Energy Corp. is selling legacy properties in the Cana Woodford Shale, including the rights to 298 producing wells, "because it does not have the drilling budget to adequately develop the abundant additional opportunities in the area," according to a sales listing. Ninety-eight percent of the leases are held by production.

The Chitwood-Knox properties for sale cover 40,000 net acres (80,000 acres gross) in Grady, Stephens and Garvin counties, OK, in the southeast extension of the shale play, according to Meager Energy Advisors. "All rights to all horizons presently owned by Chesapeake will be conveyed."

To ensure it can meet its financial obligations, Chesapeake in August increased its asset sales plans for 2012 by $1.5 billion and said it intends to sell $13 billion of its prized onshore assets (see NGI, Aug. 13). The bulk of the sales is expected to be from one or multiple sales of its Permian Basin properties, which the company is hoping to complete by the end of this month (see NGI, Feb. 20).

According to Chesapeake, the Cana Woodford land being marketed contains "significant upside" for horizontal development. Most of the wells to date have been vertically drilled. The area being sold is in an area that has drawn renewed interest from unconventional producers. Most of the wells Chesapeake is selling first were drilled from 1947 to this year, with most of them drilled after 1994, according to the listing.

The acreage for sale "supports drilling of an additional 1,379 horizontal Woodford wells," or 476 net wells, the listing said. Pro forma single-well economics indicated that the expected per-well estimated ultimate recovery (EUR) is 7.4 Bcf of natural gas and 220,000 bbl of oil, or 1.45 million boe. After processing, the expected per-well EURs were set at 6.3 Bcf, 220,000 bbl of oil and 832,000 bbl of natural gas liquids, or 2.102 million boe.

Completed well costs are said to be about $9 million each; the PV-10 (present value of net estimated future revenues, discounted at an annual discount rate of 10%) was set at $10.9 million with a 69% rate of return.

From June 2011 through May Chesapeake's net production from the wells averaged 342 boe/d, which included 10.747 MMcf/d of natural gas and 240 B/d of natural gas liquids; gross output was 37.705 MMcf/d and 1,531 boe/d. Chesapeake has earned on average $1.658 million net every month in operating cash flow from the wells; average net revenue interest is 82%.

The producing wells to be sold are in 122 sections; Chesapeake operates 138 of them with average working interest of 75%. Included is one horizontal well in the Woodford. Of the 151 nonoperated wells, Chesapeake has an average interest of 14.56%; those wells include three horizontals. Overall, 10 nonoperated wells currently are drilling, including nine horizontal. Another 24 nonoperated wells are waiting to be completed.

There are 40-acre vertical infilling within the producing formations of the Sycamore, Woodford (vertical and horizontal), Hunton, Viola and Simpson. There also are "scattered pockets of vertical potential" in the Deese, Morrow and Springer formations. In addition, Chesapeake indicated "possible horizontal development" within the Sycamore formation's Mississippi Lime extension, as well as within the Hoxbar, Deese and Springer formations.

To date more than 600 horizontal Woodford Shale wells have been drilled in the Cana play, Chesapeake said. Cumulative production is more than 250 Bcf of gas and 2.5 million bbl of oil since 2007, it said. The biggest net landowners in the Cana-Woodford are said to be Continental Resources, Devon Energy Corp. and Marathon Oil Corp. (see NGI, Aug. 6; Oct. 3, 2011).

Bids on Chesapeake's Cana Woodford assets are due Oct. 10; closing is anticipated Nov. 15.

In addition to separate marketing for the Permian assets, Chesapeake still has three packages of properties for sale by Meager. A package of five conventional and unconventional properties in the Denver-Julesburg Basin in Colorado and Wyoming, which were put up for sale in May, remain on the market (see NGI, May 28). Chesapeake's Utica/Point Pleasant Trend properties also remain for sale (see NGI, June 11). In addition, the company still hasn't sold 450,000 net acres in Northern Michigan; an investigation into Chesapeake's land deals in the state was begun earlier this year (see NGI, July 2).

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