Monday, August 4, 2008

Chesapeake Earnings Call: We're #1

Chesapeake announced its quarterly earnings last week as all public companies do (shareholder presentation and press release). The big news from Chesapeake's side, however, was not that the company beat analyst projections of revenue and income but that Chesapeake is now the #1 producer of natural gas in the US. Given the company's obsessive list of things in which they are #1, one can tell that it was a central part of the company's internal strategy to become the #1 gas producer in the US (rather than #3). If they had to buy, sell and deal their way into it, it was absolutely going to happen.

In discussing the Haynesville Play, Chesapeake noted that they have 450,000 net acres under lease (remember that they have deals where they share acreage, most notably with Plains Exploration, that reduce the “net” acreage) and are continuing to lease. They have 11 horizontal wells in place that are producing 45 MMcfe/day gross and expect to be generating 75 MMcfe/day by the end of the year.

Chesapeake’s latest well, Milton Crow 27-1H, is producing 14 MMcfe/day at 5,800 psi on a 24/64 choke. Chesapeake now has 8 rigs working the area, but they anticipate having 12 by the end of the year, which should allow the company to complete a well every five days. As they continue to add rigs (targeting up to 60) in the future, they should be completing at least one well a day in a few years.

There is no question that Chesapeake is all over the Haynesville Play.

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