Friday, June 20, 2008

New Chesapeake Presentation

Today, Chesapeake posted a new investor presentation on its web site. It's not new news (in fact, it doesn't reflect some of the company's recent announcements), but it's a pretty good summary of how Chesapeake sees itself. There is a great deal of pro-Chesapeake spin, but the company's strategy is clear: they want to be the dominant gas producer east of the Rockies. You can see that in their behavior in leasing property and doing deals in the Haynesville Shale.

The presentation has a good page on their take on Haynesville.

Did anyone notice that the spot price of natural gas closed at $12.77 today? (The news folks only seem to talk about crude oil prices.) It's held above $12 and been relatively steady for a few weeks. The guys at Chesapeake and the other gas companies must need to keep large bowls around to collect their drool.

Tuesday, June 17, 2008

Encana Reports Progress

Yesterday, EnCana Corporation (NYSE: ECA), a Calgary-based E&P company, announced its progress in the Haynesville Play. The company has leased 325,000 net acres in the play, which puts it among the largest lessees, and it has entered into a 50/50 joint exploration with an even bigger fish, Shell Exploration & Production, to drill in the area. The JV is operating two rigs in the play and expects to have five rigs operating by year end.

EnCana also announced results from a horizontal well drilled in February in Red River Parish. Although the company released little information, EnCana stated that the well flowed at an initial rate of 8 MMcf per day, which rivals some of the best wells in the Barnett Shale.

By bringing in a big hitter like Shell, clearly EnCana is excited about the Haynesville Play.

Monday, June 16, 2008

Chesapeake-Goodrich Joint Venture

Today Chesapeake Energy and Goodrich Petroleum announced a joint venture whereby Chesapeake will pay Goodrich $178 for a percentage of the deep rights in two of Goodrich's key fields, Bethany-Longstreet and Longwood (link to press release). Chesapeake will be the operator of the joint venture and Goodrich will retain its lease rights in the shallower fields through the base of the Cotton Valley sand.

The stock market seems to like the JV, as both companies are up at the time of this post (CHK +3.4%, GDP +5.4%). This seems like a win-win for both companies. The Goodrich acreage is in the middle of Chesapeake's leases, so it plugs a gap in their map. Since they want to dominate the Haynesville Play, it makes sense to take down such a large block of concentrated acreage adjacent to their existing holdings.

For GDP it makes a lot of sense too. They still have economic exposure to the play, but they don't have to raise a ton of capital. They get a capital infusion and can focus on their shallower operations. They are being well compensated for being an early participant in the Haynesville Play.

It appears as though there was competition for this deal, but we're certainly not surprised that Chesapeake won.

Wednesday, June 11, 2008

Natural Gas Prices

While the news has been focused (with good reason) on the price increases in crude oil, I've been following the price of natural gas. The Henry Hub Spot Price (Henry Hub is a location on a pipeline in Erath, LA where spot prices for the New York Mercantile Exchange (NYMEX) are set, and the price set there is the generally accepted price for natural gas in the US) closed today at $12.50 per million BTU (MMBtu). The price peaked last week around $12.70.

But the big news, which is hardly lost on the natural gas companies trying to gather leasehold acreage in the Haynesville Shale, is that the price in January was between $7.50 and $8.00/MMBtu. Six months ago, the price was hovering around $7.00. In 2007, the price got as low as $5.50. A nearly 80% increase in price in six months is a sharp rise by any measure.

While it can be argued that these prices are a bubble or are artificially inflated, the natural gas companies are clearly excited. It means that the leasing activity will continue at a furious pace because they are can't wait to start pumping it out of the ground.

Tuesday, June 10, 2008

Chesapeake Energy: The Big Kahuna

Chesapeake Energy (NYSE: CHK) has positioned itself as the biggest player in the Haynesville Shale. This should be no surprise to people who follow CHK, which has positioned itself similarly in other gas shale plays, including Barnett, Marcellus, Woodford and Fayetteville.

The company’s corporate strategy is to be the biggest player in gas in the US by focusing on onshore properties east of the Rockies. CHK uses its money and muscle to become the dominant player in each play they target. CHK refers to the leasing period in the various shale plays as “the great land grab,” of which CHK has declared itself the winner in each case. For an interesting take on CHK, read the May 12, 2008 Fortune article on the company and its co-founder Aubrey McClendon. Landowners in the Haynesville Play have seen the Chesapeake swagger first hand, as CHK swept in to lease as many acres in the Play as possible.

A few interesting tidbits regarding the Haynesville Play came forward in their presentation to shareholders at CHK’s annual shareholder meeting:

  • CHK now has lease commitments for approximately 500,000 acres in the Haynesville Play. This was CHK’s initial goal, but I’ve heard that they are going to shoot for more acreage.
  • They have looked at data from more than 50 wells that have penetrated the formation. Of course they have no intention of sharing the data with the public, but they seem to be ahead of other companies in terms of collecting lots of data. They also seem pretty happy with the results.
  • CHK has now drilled four vertical and six horizontal Haynesville wells. They expect to complete two more in June 2008.
  • They are currently drilling wells with five rigs and planning for at least 12 rigs by year end 2008 and 30 rigs by year end 2009.

In summary, CHK seems pretty psyched about the Haynesville Play and will continue to be the most aggressive player, especially in attitude, in the area.