Chesapeake Upping Utica Stakes

Processing constraints might have curtailed Chesapeake Energy Corp's natural gas production in the Utica shale of eastern Ohio, but that's likely to change by the second half of this year, says its acting CEO.

"We've reduced cycle times there and our efficiencies are improving," Steve C. Dixon said Wednesday during a conference call to discuss his company's first-quarter earnings. "With the pace we're on, we'll meet those objectives and significantly grow production in the last half of this year."

Chesapeake posted net income of $15 million for the quarter ended March 31, or two cents per diluted share, compared with a loss of $71 million the same period a year ago.

The energy giant reported it has budgeted 63% of its capital expenditures on well completions in the Eagle Ford and Greater Anadarko Basin shale plays this year, 11% to the Utica.

As of March 31, Chesapeake reported it's drilled 249 wells in the Utica. However, just 66 are in production while another 86 await pipeline connections.

"Processing is really the holdup," Dixon said Wednesday. Two major processing plants are under development that will tie into Chesapeake wells. Dominion’s Natrium plant in West Virginia is expected to be in operation this month and the first phase of M3 Midstream's Kensington plant in Columbiana County is scheduled to come online by June and the second phase by the end of the year.

Both processors are important to Utica production because they are needed to separate dry gas, such as methane, from natural-gas liquids such as ethane, butane and propane.

Jeff Fisher, Chesapeake executive vice president for production, reported the company's Utica wells remain on track to hit the goal of producing 330 million cubic feet equivalent per day, but overall production has remained flat since Chesapeake last provided an update April 1.

During the first quarter, net production from Chesapeake's wells averaged 66 million cubic feet of natural gas equivalent per day.

Thirteen wells were placed into commission, Chesapeake reported, with an average peak daily rate of 1,200 barrels of oil equivalent.

"We now expect the next-step change in our Utica production will occur closer to mid-year," Fisher said, once the Natrium plant is operational.

Chesapeake highlighted the performance of three wells in the Utica play. The Coe 34-12-4 1H well in Carroll County achieved a peak rate of 1,980 barrels of oil equivalent per day that included 235 barrels of oil, 470 barrels of natural gas liquids (NGLs) and 7.6 million cubic feet of gas per day.

The Scott 24-12-5 6H well, also in Carroll County, achieved a peak rate of 1,530 barrels of oil equivalent per day, consisting of 285 barrels of oil, 350 barrels of NGLs, and 5.4 million cubic feet of natural gas.

In Harrison County, Chesapeake's Henderson South well achieved a peak rate of 1,625 barrels of oil equivalent per day, which included 755 barrels of oil, 240 barrels of NGLs, and 3.8 million cubic feet of natural gas liquids.

Fisher emphasized the Coe unit exemplifies the cost efficiencies that come with drilling multiple wells from a single pad.

"We drilled six wells from a common pad," he said. The first well cost $8.5 million, including infrastructure, while the five others at the site averaged just $5.9 million to complete, or a reduction of 30% in cost.

Dixon said the company has made strides in reducing its debt and is focusing on improving shareholder value.

"Chesapeake is off to a strong start in 2013," Dixon told analysts. "We are capitalizing on drilling efficiencies wherever possible and leveraging our investments in roads, well pads, gathering lines, and compression and processing facilities."