Wednesday, May 6, 2015

Chesapeake Releases Earnings and Update on Haynesville

Chesapeake released its Q1 2015 earnings this morning.  Here are the highlights regarding the Haynesville (and Mid-Bossier) (quotation marks indicate text from press release):

  • "The full-year 2014 average completed well cost was $8.4 million with an average completed lateral length of 4,900 feet and 14 frac stages, compared to an average completed well cost of $8.9 million in 2013 with an average completed lateral length of 4,400 feet and 18 frac stages."
  • "In April 2015, the company placed its initial two modern extended lateral (7,500 feet) Haynesville wells on line, the Nguyen 8-15-14 1H ALT and the Nguyen 5-15-14 2H ALT at peak 24-hour rates of 18.5 MMcf per day and 16.7 MMcf per day, respectively, with flowing surface pressures of approximately 600 PSI per foot greater than surrounding in-unit wells." These wells have not yet been officially reported and are not yet in my completion list.
  • "Chesapeake also recently turned in line two successful tests in the Bossier Shale utilizing enhanced stimulation techniques. These wells are producing at a restricted rate of 12.0 mmcf per day paving the way for future Bossier development of 200 – 400 wells that can utilize both enhanced stimulation and extended laterals."  The Mid-Bossier wells are Bedsole 1-10-13 H #2-ALT (Serial #248807 in DeSoto Parish), which was reported a couple of weeks ago, and CHK Min 28-10-13 H #2-ALT (Serial #248565 in Sabine Parish), which hasn't officially reported yet and is not on my list. 
Here are the pretty pictures from the presentation.  To me, the important takeaway from the slides below is the company's emphasis on improvement through new techniques and efficiencies, which is a departure from the old smash-and-grab Chesapeake run by former CEO Aubrey McClendon, which focused on maximizing the quantity of assets the company owned only to sort them out later.  In fairness to McClendon, though, the plan was always to "farm" the fields once they were acquired, but I don't think he would have had the patience to run such a boring (but effective) company.

As noted above, only one of these Mid-Bossier wells has officially reported:

I hate to dwell on Aubrey too much, but I can't help but thinking about seeing the traveling Broadway production of Barnum when I was young.  It made such an impression on me that I can still hear the songs in my head today, more than thirty years later.  The show told the story of P.T. Barnum, whom as we all know was one of the great circus promoters and showmen of the nineteenth century.  He was famously associated with the phrase "there's a sucker born every minute" (it's a recurring theme in the score of the musical, but I read in Wikipedia that he did not, in fact, coin the term).  Later in life, he settles down and becomes an elected official.  In the play, that sedate period of his life is drudgery, as he sings in the song "Black and White." Eventually "color" and excitement come back into his life as his wife allows him to go back to his old ways and he ultimately merges his circus with James Bailey's.  

I can't help but draw the comparison between Aubrey and Barnum.  I feel like Aubrey needs the excitement of aggressively building the company through wheeling and dealing and would never be suited for the "black and white" of day-to-day execution.  It's probably best for both parties that they parted ways.

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