Tuesday, July 22, 2008

Tasty Morsels from Chesapeake/Plains Call

I finally got around to reading the transcript from the July 2 joint conference call with Chesapeake (CHK) and Plains (PXP) regarding their joint venture to develop CHK's Haynesville acreage. There was a lot of good information there, although they kept the tastiest morsels to themselves.
  • CHK CEO Aubrey McClendon stated that their research indicates that the Haynesville Play contains recoverable gas reserves of 250 TCF from over 700 TCF of gas in play. That's 250 trillion cubic feet. They firmly believe it is the biggest reservoir in the US and the fourth biggest in the world.
  • McClendon defined the core area of the Haynesville Play as approximately 3.5 million acres in LA and TX. They come to this figure based on analysis of 70 penetrations over the past two years. There is additional acreage outside of the core area that is considered less productive and is not counted in the 3.5 million acres.
  • This is old news that merits repeating, but CHK estimates that the Haynesville wells will recover between 4.5 and 8.5 Bcfe, and they use 6.5 Bcfe to calculate their estimated ultimate reserve (EUR). They consider 6.5 Bcfe a conservative number and referred to it as their "floor."
  • They expect things to move quickly in the Haynesville Play, especially compared to the Barnett Shale. They expect the borders of the play to be established in 6 months, compared to 5 years for the Barnett. They also see the Haynesville field as being easier to mine, both logistically and geologically than their other shale plays.
  • The Haynesville Shale is geologically superior to the other N. American shale plays. The reservoir is very consistent with high porosity. It also has fewer underground and surface challenges that the other shale plays face. Additionally, it over-pressured shale. Haynesville Shale is twice as pressured as the Barnett, Fayetteville and Woodford Shales and it is 50% more pressured than the best areas of the Marcellus Shale.
  • McClendon feels that the gas from the Haynesville Play will fetch a higher price in the market given the fact that the field is located closer to the east coast than some of the other fields.
  • CHK has 750 (out of 4,000) landmen in the Haynesville area. CHK has a very aggressive multipart strategy to lease property, but the huge number of boots on the ground give it access to the smaller landowners. Plus, CHK is using Twin City to do the urban leasing around Shreveport using the expertise Twin City developed in Ft. Worth leasing Barnett acreage.

The CHK/PXP deal is structured so that CHK benefits handsomely the faster the play is exploited, so expect Chesapeake to keep up their strong momentum going forward.

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