Chesapeake Energy Corp. said Monday that it has successfully completed and begun sales from a natural gas discovery at its Cat Creek 1-19 well in the Comanche Lodge Prospect in the Greater Mayfield area of the Deep Anadarko Basin. Located in western Oklahoma, the well has produced 17 MMcfe/d over a 24-hour period beginning last Sunday.

Based on initial gas sales rates and other indicators. Chesapeake believes the Cat Creek 1-19’s gross proved reserves are approximately 25 Bcfe, 10 Bcfe from the Upper Hunton and 15 Bcfe from the behind-pipe Middle Hunton. The Oklahoma City-based company owns a 70% working interest and a 52% net revenue interest in the Hunton zones in the Cat Creek 1-19.

In addition, Chesapeake recently reached total depth on two deep (20,000 feet) exploratory Morrow/Springer tests in the Greater Mayfield area. According to the company, the Morrow/Springer zones in this area have produced 110 Bcfe with an estimated ultimate recovery of 235 Bcfe (not including potential Morrow/Springer reserves at Comanche Lodge).

“Comanche Lodge is a major gas discovery for Chesapeake and for Oklahoma’s deep gas industry,” said Aubrey K. McClendon, Chesapeake’s CEO. “We have talked during the past six months about 2002 being a breakout year for Chesapeake, a year in which we hope to demonstrate conclusively that we have the most exciting onshore exploration program in the U.S. We believe our three recent Comanche Lodge discoveries are the first major confirmation of the significant and largely unrecognized exploratory upside that exists in Chesapeake.”

The company said because the Upper Hunton’s gas is sweet (only 2 parts per million (ppm) of H2S) and the Middle Hunton’s gas should be slightly sour (up to 300 ppm of H2S), it plans to produce the Upper Hunton separately for several months until additional gas transportation arrangements can be made and both zones are commingled. Chesapeake said that any additional gas facilities needed to accommodate Middle Hunton production should cost less than $1 million. Currently, Chesapeake said its net cost to drill and complete the Cat Creek 1-19 was $12 million.

To date, the Hunton formation in the area has produced more than 520 Bcfe and has an estimated ultimate recovery of 600 Bcfe. Chesapeake said the closest analogous field to Comanche Lodge is Northeast Mayfield, where the Hunton will average an estimated ultimate recovery of 36 Bcfe per well. These Mayfield area Hunton reserves do not include the projected 250 Bcfe (130 Bcfe net to Chesapeake) of Comanche Lodge Hunton reserves.

Seven additional wells will be necessary to fully develop the Hunton in Comanche Lodge, two of which should begin drilling in the next 60 days offsetting the Cat Creek 1-19. Chesapeake said the additional wells will reach total depth of 25,000 feet within 240-270 days from spud at a gross completed per well cost of $13-15 million. The company said targeted per well reserves are 25-35 Bcfe.

Regarding its Morrow/Springer potential, Chesapeake said it believes that it can find more than 100 gross Bcfe (50 Bcfe net to Chesapeake) of Morrow/Springer reserves on its Greater Mayfield acreage. Estimated completed well costs are $5 million for targeted reserves of 5-15 Bcfe.

In addition, Chesapeake said other deep exploratory wells with significant potential are under way in the Arkoma, Bray, Cement, Chitwood, Knox and Watonga-Chickasha areas of Oklahoma. The company’s current inventory of more than 1,500 undrilled locations includes approximately 50 additional ultra-deep drilling locations.

“For several reasons, Chesapeake has accelerated its drilling activity in 2002, despite this year’s downturn in gas prices,” explained McClendon. “First, we are extremely enthusiastic about evolving natural gas market fundamentals that we believe will provide much higher prices in 2003 and 2004 than what we have seen to date in 2002. Second, we are taking advantage of today’s very attractive drilling costs, which are 30-50% lower than the drilling costs that prevailed in 2001. Finally, in an effort to spur additional deep gas drilling in Oklahoma, we worked with the Oklahoma Legislature to create a five-year severance tax abatement for 6/7ths of the state’s 7.1% severance tax on production from all wells spudded in the next year that target formations below 17,500 feet. On a 10 Bcfe Morrow/Springer well in Greater Mayfield, these severance tax savings could offset up to 40% of a well’s total cost and will provide an additional incentive for continued exploration of new reserves of ultra-deep gas.”

Chesapeake is holding a conference call Friday (July 26) at 8:00 a.m. CDT to discuss its drilling plans and its second quarter 2002 earnings announcement, which will be released after the market closes on Thursday.

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