Chesapeake Energy Corp., announcing a third quarter jump in production Wednesday, also revealed itself as the buyer of Anschutz Exploration Co.'s 500,000 net acres in the Marcellus Shale.
The revelation in Chesapeake's latest quarterly earnings report filled in the blanks of the earlier announcement by the privately held holding company of billionaire Philip Anschutz that it had received $3 billion in separate asset sales in the Marcellus and Bakken shales. However, the buyers weren't disclosed (see Shale Daily, Oct. 8).
Chesapeake acknowledged that it "had the opportunity to acquire a significant additional position in the Appalachian Basin from privately held Anschutz Corp. In this transaction, which is scheduled to close later this month, the company has agreed to acquire approximately 500,000 net acres of Appalachian Basin leasehold and option rights for approximately $850 million."
Chesapeake said to date it has built the "largest combined inventories of onshore leasehold" in the United States with 13.8 million net acres and 27.4 million acres of 3-D seismic. The gas shale leasehold inventory is estimated at 2.8 million net acres.
On its total leasehold inventory, Chesapeake said it has identified an estimated 16.7 Tcfe of proved reserves (using volume estimates based on the 10-year average New York Mercantile Exchange strip prices on Sept. 30) 102 Tcfe of risked unproved resources and 259 Tcfe of unrisked unproved resources.
Overall production in the quarter just ended increased 23% over 3Q2009 and 9% over 2Q2010 to 3.043 Bcfe or a total for the quarter of 280 Bcfe, 90% of it natural gas. The natural gas realized price for the quarter was $5.67/Mcfe, down from $6.14 in the second quarter and $6.44 in 3Q2009. Liquids production in the latest quarter rose 50% year/year to 10% of total production. Chesapeake produced 2.748 Bcf of natural gas in the period, which was 20% higher year/year.
The Oklahoma City-based producer reported net income totaled $515 million (75 cents/share) in 3Q2010, with operating cash flow of $1.07 billion. In the year-ago period net profits totaled $186 billion (30 cents/share) and cash flow was $1.12 billion. However, adjusted earnings per share, assuming dilution, were at the same level as last year's 3Q at 70 cents/share.
About 25% of the Anschutz assets "will be immediately marketed for resale after closing while the remainder of the assets will be combined with Chesapeake leasehold in a play in which the company expects to execute a new industry joint venture [JV]in the first half of 2011." Chesapeake has become somewhat of an expert in monetizing stakes its properties through JVs with well financed producers. Norway's Statoil ASA has partnered with Chesapeake in the Marcellus play since 2008 (see Daily GPI, March 29; Nov. 12, 2008).
"As with all of Chesapeake's leasehold acquisitions in new plays, the company's goal remains the same: acquire an industry-leading leasehold position in a new play and then bring in a minority industry partner to help de-risk the play and to provide reimbursement of all or most of Chesapeake's leasehold costs in the new play," the operator said.
"The company is currently using 140 operated drilling rigs to further develop its inventory of approximately 40,000 net drill sites. Of Chesapeake's 140 operated rigs, 95 are drilling wells primarily focused on unconventional natural gas plays (including 48 operated rigs utilizing drilling carries) and 45 are drilling wells primarily focused on liquids-rich plays. In addition, 133 of the company's 140 operated rigs are drilling horizontal wells."
In recognition of the "value gap between oil and natural gas prices," the producer has accumulated about 3.1 million net leasehold acres with 4.3 billion boe (25.9 Tcfe) of risked unproved resources and 13.7 billion boe (82.4 Tcfe) of unrisked unproved resources.
"As a result of its success to date, Chesapeake expects to increase its oil and natural gas liquids production through its drilling activities to more than 150,000 b/d, or 20-25% of total production, by year-end 2012 and to more than 250,000 b/d, or 25-30% of total production, through organic growth by year-end 2015."
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