As U.S. producers transform their asset base exclusively from natural gas to a more balanced one that includes oil and liquids, investors “might be surprised by what happens to the gas curve in the years ahead,” Chesapeake Energy Corp. CEO Aubrey McClendon said last week.

Just wait for the time “when the gas curve has to bid for gas rigs because the rigs have moved to oil plays…I think investors fail to understand how sticky these rigs will be once they move to oil plays,” McClendon said at the Independent Petroleum Association of America’s Oil & Gas Investment Symposium in New York City.

“I think the point very few investors understand is that the industry is rapidly transforming its asset base exclusively from natural gas to a balanced one and we are now working on oil and liquids plays where the returns are so much higher…

“Once producers convert to drilling wells that produce $10-15/Mcfe units and finish HBP [held by production] natural gas drilling, why would they go back to drilling natural gas wells if prices increase from $4/Mcf to $5, to $6 as most analysts are forecasting?

“I believe this is the single biggest misunderstood aspect of the future bull case for natural gas.”

As if to back up the CEO’s belief, on Friday Chesapeake agreed to pay $315 million to buy land driller Bronco Drilling Co. Inc. The cash tender offer, which includes debt and net working capital, would give Edmund, OK-based Bronco an estimated $11/share for its outstanding common stock, which represents a 6% premium above the NASDAQ closing price last Thursday.

Bronco owns 22 drilling rigs that primarily operate in the Williston and Anadarko basins, including three that are under contract with Chesapeake, which is Bronco’s second largest customer. According to Tudor, Pickering, Holt & Co. Inc., Bronco has three mechanical rigs and 19 silicon-controlled rectifier rigs with 1,000-2,000 hp, “but nothing state-of-the-art.”

Once the transaction is completed, which is expected by the end of June, Bronco would be integrated into subsidiary Nomac Drilling LLC, which now owns 95 rigs, 90 of which it has under contract to Chesapeake. The company is operating 160 drilling rigs and plans to end 2012 using about 200 rigs. Acquiring Bronco “should satisfy the vast majority of Chesapeake’s anticipated rig investment needs through 2012,” the producer said. The purchase, said McClendon, allows the company to advance its goal to own two-thirds of the rigs it operates.

Plenty of reasons should turn investors bullish on “intermediate and long-term” gas prices, McClendon told the IPAA audience. Chesapeake’s continuing success in obtaining foreign joint venture partners, as well as its recent Fayetteville Shale sale — a gas play — to Australia’s BHP Billiton Ltd. for $4.75 billion in cash illustrate the point (see NGI, Feb. 28).

“It’s a reminder that global energy companies see things differently than most U.S. investors do,” McClendon said of the Fayetteville sale. Overseas investors “are able to look through what may be a sloppy gas market in 2011 and maybe 2012…”

As Chesapeake and other onshore producers have begun to transition to more oily production, the “global industry is transforming too,” he noted. “The U.S. today has some of the profitable oil plays in the world, something that hasn’t been true for 50 years. The global industry is bringing enormous sums of money into the U.S., which is good news for companies like ourselves…”

President Obama’s recent energy speech also provided momentum for the gas market, he told the audience. The avalanche of news about vehicles powered by compressed natural gas (CNG) and liquefied natural gas (LNG) is among the “least important” for an “immediate impact” on the gas market, he believes.

However, Obama’s speech provided a “psychological impact…When the president of the United States is talking about moving the U.S. fleet to alternatives, including CNG, it’s a very big deal…that in time will be very significant.”

It’s his “personal view” that the United States is “about $1 billion of infrastructure away” from building out a solid CNG platform for U.S. fleets. “If we can get most heavy trucks moved over, it would be enormously important for the country. A lot of the capital can come from industry itself…We are spending about $40 billion drilling wells. Surely we could come up with 1% of that for natural gas infrastructure…”

In addition to growing industry demand, and hence more use of low-priced gas, the CEO also sees a “continuing and accelerating shift from coal to natural gas for U.S. electrical generation.” If the shift to gas from coal were to occur, “gas demand could increase 10-15 Bcf/d over the next decade,” he noted.

McClendon also remains optimistic about the future of U.S. gas-to-liquids plants, as well as the future of LNG exports from the United States.

“I absolutely believe the United States will be exporting LNG by 2015,” he said. “Many are sure the government won’t allow us to do that, but I believe we will be able to. We export coal…we export corn, certain commodities. Why not gas?”

By the end of 2015 the company still has its sights set on becoming a “top five oil producer” in the United States, McClendon said. The company has moved from the 25th spot to the “top 15” in the past six quarters, he noted.

Chesapeake is balancing its portfolio, but don’t expect it to shun gas. At the end of March, said the CEO, the company “hit a production milestone of 6 Bcf/d gross, which means about 10% of U.S. production is from Chesapeake-operated wells.”

The company also ranked as the largest Marcellus Shale oil and gas producer during the second half of 2010, according to the Pennsylvania Department of Environmental Protection. During that period, the company produced 48.1 Bcfe from the play, which was enough to maintain its small lead over No. 2, Talisman Energy, which produced 46.4 Bcfe.

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