What is driving CHK’s substantial liquids production growth?
Jeff Mobley Senior Vice President – Investor Relations and Research
n response to strong oil and NGL prices as well as ongoing operational and technological success, we have greatly accelerated drilling in our liquids-rich plays. In 2011, our liquids-rich plays accounted for approximately 50% of our drilling and completion expenditures, and in 2012, we project that spending on these plays will exceed 85%. During 2011, we increased our average operated rig count on liquids-rich plays by 55 rigs, or 150%, to 92, and we plan to increase this level by 41 rigs, or 45%, to 133 rigs in 2012. Our production from liquids increased by 36,000 bbls per day, or 72%, in 2011 to 87,000 bbls per day, and we anticipate a further increase of more than 63,000 bbls per day, or 70%, in 2012 to 150,000 bbls per day (excluding the effect of our projected asset monetization transactions in the Permian Basin and Mississippi Lime play). We are well on the way to achieving our goal of increasing average daily liquids production to 250,000 bbls per day by 2015, a level at which we will likely be a Top 5 U.S. liquids producer. One of our largest increases in liquids production for 2011 and 2012 has been from the Eagle Ford Shale play in South Texas. We have drilled approximately 470 wells to date, of which only 280 wells are producing (mainly because of infrastructure bottlenecks), and almost half of the producing wells have had peak production rates in excess of 500 bbls per day. In 2011, we made substantial progress in building the needed infrastructure in the Eagle Ford by adding 350 miles of pipeline as well as regional rail-loading terminals. As a result, we expect production from the Eagle Ford to account for just over 25% of total liquids production by year-end 2012. Our production from the Mississippi Lime carbonate play in northern Oklahoma and southern Kansas is also ramping up nicely, growing by approximately 3,500 bbls per day, or 140%, in 2011, and we anticipate continued success from this play with growth of more than 14,000 bbls per day, or 230%, projected for 2012. We also continue to experience excellent results in the Anadarko Basin from our Granite Wash, Cleveland and Tonkawa tight sand plays and from our liquids-rich Niobrara Shale play in the Powder River Basin. Lastly, we look forward to ramping up drilling activity and production from our recent discovery in the Utica Shale play in eastern Ohio where we have very high expectations.
How has CHK been able to discover the most new U.S. unconventional resource plays?
Steve Dixon Executive Vice President – Operations and Geosciences and Chief Operating Officer
20 | Investor Q&A
he skill set required for new play identiﬁcation and subsequent aggressive leasing is not easily obtained. Over the years, Chesapeake has made a concerted effort to invest in and develop the necessary skills and resources to become the premier discoverer and developer of U.S. unconventional resource plays. Our track record for ﬁnding unconventional resource plays is unmatched in the industry, leading the way in discovering the Haynesville and Bossier shales in Louisiana, the Colony Granite Wash in western Oklahoma, the Tonkawa tight sand play in western Oklahoma, the Mississippi Lime carbonate play in northern Oklahoma and southern Kansas and most recently the Utica Shale in eastern Ohio. Our investment and commitment to people and technology have paid tremendous dividends. Since 2000, the company has grown its geoscience, engineering and operational staff from 200 to more than 2,550 at year-end 2011. The company beneﬁts tremendously from the industry’s only in-house shale core Reservoir Technology Center which uses proprietary testing techniques on rock core samples taken thousands of feet beneath the surface from various unconventional plays. Performing complex analysis in-house rather than relying on third-party providers gives Chesapeake greater conﬁdentiality and consistency of data. It also provides a massive data inventory on hundreds of plays and a critical time advantage over peers in evaluating new plays — all key ﬁrst mover advantages.