uploads/2018/06/gas-assets.png

Appalachia and Haynesville Are Chesapeake Energy’s Mainstay

By

Updated

Chesapeake Energy’s natural gas assets

Chesapeake Energy’s (CHK) natural gas assets are located in the Marcellus Shale in the northern Appalachian Basin in Pennsylvania, the Haynesville Shale in northwestern Louisiana and east Texas, and the Utica Shale in Ohio.

According to Chesapeake Energy’s presentation on May 16, the company has a rate of return of ~75% on its Marcellus wells, assuming that natural gas prices are around $2.75 per Mcf (thousand cubic feet). In comparison, Chesapeake Energy has a rate of return of ~40% on its Haynesville wells, assuming that natural gas prices are at $2.75 per Mcf.

Article continues below advertisement

Southwestern Energy’s (SWN) Marcellus production was ~48% of its total production in the first quarter. For Range Resources (RRC), ~83% of its total production came from the Marcellus in the first quarter. In comparison, ~97% of Cabot Oil & Gas’s (COG) first-quarter production came from the Marcellus, while 81% of EQT’s (EQT) first-quarter production came from the Marcellus.

Natural gas production

In the first quarter, Chesapeake Energy’s production from the Marcellus Shale was ~26% of the total production, while 25% of the company’s total production came from the Haynesville play. These two regions accounted for more than 50% of the company’s total production in the first quarter. The Utica Shale contributed 19% to the total production in the first quarter. So, 70% of the total production came from these three regions combined in the first quarter.

Article continues below advertisement

In the fourth quarter of 2017, when questioned by an analyst about whether the company is prioritizing its oil assets more than its gas assets, management responded that it is optimistic about gas. Managment sees attractive return opportunities in the Powder River Basin and the Eagle Ford. Management said, “So as we think about what our best opportunities from a portfolio standpoint are, they have led us to gas.”

Conclusion

Chesapeake Energy will continue to focus on its natural gas assets. However, the company won’t lose sight of the value it expects to see from its oil assets in the Powder River Basin and Eagle Ford. The company is working towards cost reduction and operational efficiency with the end goal of achieving improved margins.

Chesapeake Energy is also focused on debt reduction, allocating capital expenditures to projects that offer the highest returns, deploying the latest drilling and completion technology, and divesting assets.

Advertisement

More From Market Realist