Where will Chesapeake concentrate its drilling activity?
In 2014, Chesapeake indicated ~35% of its capex budget would be allocated towards its Eagle Ford assets in South Texas, ~20% of its capex budget would be allocated towards the Mid-Continent (Mississippian Lime, Cleveland, Tonkawa, Colony, Texas Panhandle Granite Wash, and other Anadarko plays), ~15% towards the Utica play located in Ohio and Pennsylvania, ~10% towards the Marcellus North in Northeast Pennsylvania, and ~10% towards the Haynesville in Northwest Louisiana.
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Plus, in terms of operated rig count, CHK expects to run the majority of its rigs in Eagle Ford, the Mid-Continent, and the Utica plays. This in itself isn’t surprising, as these plays target liquids (oil and natural gas liquids), which are more profitable in the current price environment, where oil generates a much higher profit margin than natural gas generally speaking. Natural gas prices have been depressed for several years, as an increase in natural gas–targeted drilling caused a supply glut in the U.S., and the commodity is difficult to export to other markets because of its gaseous state (for more on this see Must-know: Important recent drivers of natural gas prices). Meanwhile, oil prices have remained relatively high and stable.
For more discussion on CHK’s 2014E capex plans, please continue to the next part of this series.