Tuesday, May 3, 2011

Huge Story on So Many Different Levels: Chesapeake Has 190,000 Net Acres in The Bakken -- North Dakota, USA

Updates

July 1, 2015: Chesapeake sells assets in western Oklahoma for almost $1 billion

July 1, 2014: Chesapeake's oil services company, Seventy Seven Energy (ticker symbol SSE) begins trading today

February 25, 2013: Chesapeake to sell 50% stake in Oklahoma assets to China's Sinopec.

January 1, 2013: well, that's a wrap. The biggest failure in the recent oil history of North Dakota

October 2, 2012: Reuters' "special report" on CHK and accusations that it "strong arms" mineral rights owners. Going back on leases is one thing but suggesting that CHK went too far trying to hide "front men" involved in leasing is a non-issue. Everyone works to keep the identity of their front men hidden. I also don't have a lot of sympathy for someone who doesn't understand Rule 37 in Texas.

September 12, 2012: CHK loses Texas court case in which it tried to walk away from a lease; $20 million, rounded. Implications for the Bakken.

September 12, 2012: CHK sells Permian assets to CVX, Shell, EnerVest; more
This is the WSJ link and data points:
  • Chevron, Shell, and EnerVest: will buy Permian Basin acreage for $3.3 billion (CVX has at least $20 billion in cash as reported elsewhere) 
  • "The Permian Basin holdings were the most-valuable of several assets...[that were] put up for sale this year to raise cash, avoid a credit-rating downgrade, ... 
  • Global Infrastructure Partners will pay $2.7 billion for most of Chesapeake's pipeline and processing operations 
  • two unnamed companies will buy additional oil-gathering pipelines in the Eagle Ford for $300 million 
  • Chesapeake is also selling Utica shale acreage to an undisclosed buyer for $600 million 
August 13, 2012: CHK has the Niobrara figured out; unfortunately a) CHK has no cash; and, b) it sold its southern Niobrara assets some time ago -- at least that was the plan (see below -- May 24, 2012).
At least one oil and gas company claims to have figured out the tricky Niobrara shale play in the Powder River Basin in Wyoming.

Chesapeake Energy executives told investors Tuesday that results from the basin are picking up.
“In the Powder River Niobrara play, we’ve finally cracked the code with numerous recent wells” into newly identified drilling areas, said Steven Dixon, Chesapeake’s chief operating officer and vice president of operations and geosciences.

If the Wyoming Oil and Gas Conservation Commission’s production and permitting numbers are any indication, the company won’t be alone for long.

Nearly 430 drilling permits — which precede but don’t guarantee actual wells — have been doled out for operators in Campbell and Converse counties already this year, just less than 2011’s total of 485 permits. In 2010, drillers in the two counties requested only 168.
August 7, 2012:  Even with recent asset sale helping 2Q12 revenues, CHK plans additional asset sales.
Chesapeake Energy Corp. said it expects to put more assets up for sale even as the company closes in on sales of its holdings in the oil-rich Permian Basin, the company chief executive said Tuesday.

Chesapeake, the second-largest natural gas producer after Exxon Mobil Corp., sold $7 billion in assets so far in 2012 as it seeks to cut its debt to $9.5 billion by year's end. Chesapeake and its competitors have been hurt by low natural gas prices, which fell to a decade low in April because new drilling technology increased production while a warmer-than-usual winter cut demand for home heating.

Chesapeake is identifying further assets to sell in the next year and a half, planning on up to $5 billion in sales for 2013, Chief Executive Aubrey McClendon said on an earnings conference call.
August 6, 2012: Cash crunch.
McClendon has pledged to raise as much as $20.5 billion by the end of next year to fund drilling and maintain debt covenants. Without the sales, the cash-flow gap will widen to $18.6 billion by the end of 2013 and force Chesapeake to cancel drilling projects and reduce production targets, ...
May 24, 2012: Chesapeake to sell its southern DJ (Niobrara) assets

May 15, 2012: That $3 billion loan? Make it $4 billion.

May 15, 2012: Chesapeake bond investors jarred by harsh terms of loan.
Chesapeake Energy Corp.'s effort to reassure investors worried about its cash shortage backfired with bond investors who were rattled by the harsh terms of the $3 billion short-term loan the company detailed Monday.

The price of the company's junk-rated bonds dropped sharply in heavy trading, as bondholders digested the steep interest rates on the new loan and the large funding gap that forced Chesapeake to agree to it.

But the flexibility doesn't come cheaply. The unsecured loan carries an initial interest rate of 8.5% that increases to 11.5% if it isn't repaid by the end of the year. Chesapeake will use the proceeds to pay down the balance on its credit line; the company said Monday it has drawn down more than $3 billion on the line, which carries a 2.75% interest rate. So the new loan will increase its costs by about $173 million, and far more if the rate rises next year.
May 15, 2012: Chesapeake dismantling their asset base. They may have "best rock" but they are behind the technological learning curve. This is one of the best summaries out there.

May 14, 2012: the sharks are circling; they know Chesapeake is in trouble -- the question is who will be the first to start buying CHK assets; once the buying starts, how high will the auctions go?

April 20, 2012: Motley Fool on Chesapeake CEO borrowing $1.1 billion using wells as collateral.

April 17, 2012: CHK to spin off Chesapeake Oilfield Services in IPO; hopes to raise nearly $1 billion.

April 12, 2012: Analysis by RBN Energy; does not mention CHK by name but certainly sounds like that is exactly whom RBN is writing about.

April 9, 2012: Chesapeake raises $2.6 billion in cash; sells some non-core assets, including Oklahoma acreage to XTO.

April 9, 2012: Chesapeake removed its hedges for 2012 and 2013 at at time when natural gas was around $4, and just before natural gas plummeted to ten-year low, around $2.00. It will be interesting to see how this plays out.

March 21, 2012: Chesapeake issued a permit for a wildcat well in Stark County; this is the first permit for Chesapeake in North Dakota in quite some time. Very, very significant.

February 8, 2012: CHK pulling out of North Dakota and reneging on leases. This company with a market cap of $14 billion has $12 billion in debt, and is focused on a commodity (natural gas) in free fall. As far as I know, leases can be broken, but come with a cost if written into the contract. My hunch there was nothing in the contract to protect the mineral rights owner.

January 3, 2011: Folks were guessing who CHK was going to partner with in the Utica: the news out -- Total (France), for the tune of $2.3 billion. 

December 28, 2011: CHKM now the industry’s largest gathering and processing master limited partnership as measured by throughput volume. Chesapeake Midstream Partners, L.P. (CHKM) today announced it has agreed to acquire Appalachia Midstream Services, L.L.C. (AMS), the wholly owned subsidiary of Chesapeake Midstream Development, L.P. that holds its Marcellus Shale midstream assets, for total consideration of $865 million.

August 1, 2011: CHK confirms "hype" regarding Utica in Ohio. This is a game changer for CHK and perhaps the US.  For much, much more on this story, click here.

June 27, 2011: We're starting to see increased Chesapeake activity in the Williston Basin; see the July, 2011, NDIC hearing dockets.
Chesapeake is getting much more active, asking for about 12 new 1280-acre spacing units. Eight of those new units will be in Stark County (case #15234).

Original Post

Look at slide 13 of this presentation.
CHK reecently established position in the Three Forks/Bakken in the Williston Basin with 190,000 net acres [with plans to reach as much as 300,000 net acres].
That's a fairly significant investment in the Williston Basin Bakken, especially if they get to 300,000.

Some time ago, "anonymous" said Chesapeake was in the Williston Basin, but not necessarily the Bakken. The comment is technically correct, but the tone of the comment suggested Chesapeake was not in the Bakken. See comments at this post.

In today's earnings conference call, CHK expanded on two separate million-plus net acreage plays in the US (outside the Bakken) but limited further discussion regarding the Bakken.
The first of these is the 1.2 million net acres that we have acquired in Utica Shale play of far Western Pennsylvania and eastern Ohio. The second is the 1.1 million net acres that we have acquired in the Mississippian Carbonate play in Northern Oklahoma and Southern Kansas.
Talk about the Bakken was "cut off" during the Q&A:
Brian Singer - Goldman Sachs Group Inc.
Can you provide a little more color on your Williston position and activities there. I may be recollecting incorrectly, but I believe you've mentioned in the past that you're testing more new concepts as opposed to the Three Forks/Bakken, but I think you mentioned the Three Forks/Bakken here. Can you just give us an update on what you're seeing there?
Aubrey McClendon
Yes. We actually haven't started to drill there yet, Brian, so I can't update you but I can just confirm that we have around 200,000 acres in the play and I think we'll end up in the 250,000 to 300,000 range. And probably we'll look for a partner during the course of the year, but that's all that we have mentioned about the Williston at this point.
Brian Singer - Goldman Sachs Group Inc.
Okay. Are these new concepts or is this the same kind of Bakken/Three Forks that others are pursuing?
Aubrey McClendon
We just need to limit it to conversation about the Williston if I can at this point.

9 comments:

  1. I guess I need a name. "Anon 1" might work if it isn't taken.

    I made prior CHK comments, although some others did too.

    The written update said TF/B. That was new.

    AM has always danced away from "TF/B." He likes "Williston Basin".

    The CHK map shows ND.

    CHK's 250-300,000 range sometimes turns into 500,000+.

    CHK's recent JV's tend to be large. CHK announced plans for a JV.

    The WB has many layers.

    Some places have TF/B. Some have other plays. Some are combos.

    I said at first that CHK may be the big WB story of 2012. That may be right. 2011 may be the preface.

    Some ideas don't work. CHK has some ideas. If they work, they may be important.

    Maybe a nice TF/B play is the low end of expectations.

    The CHK Bronco Drilling buy may be related. Bronco has ND rigs and experience. It spent $1,000,000 per rig to make them ND ready. It is good to have ND experience. They can prepare as many rigs as needed.

    ND rigs may be very tight for a long time.

    Crews are hard to come by.

    Almost all operators and drilling contractors say they are adding Bakken rigs. Do any say they are dropping rigs? Few or none.

    Don't be shocked by ND rig counts of around 250 this year.

    New rigs will be needed, but over 100 are on order (for all plays).

    Frac capacity is being added fast, but not fast enough to keep up in 2011.

    Capacity limitations will probably hold back activity.

    CHK sees that and is pushing farther into services. Several others have rigs and a few have frac capacity.

    When you see national factory orders and production, think about what they would be without oil business and agricultural machinery.

    In your area, the recent news on an Eagle Ford crude pipeline extension and a steel mill in Corpus are important. Also the refitting of refineries in SAT to handle natural gas liquids, and the many chemical plants being redone for natural gas liquids as feedstocks. Some big and fundamentals things are happening.

    Anon 1.

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  2. Great post, thank you.

    I have some additional information but will post that later. I agree with your overall thesis.

    I think the events in western North Dakota are bigger and are going to lead to bigger things than most can even imagine.

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  3. With regard to "Wiliston Basin" vs "the Bakken," someone else said it first and I agree: "the Bakken" helped crystalize in minds of investors the current oil boom in western North Dakota.

    There are many pay zones in the Williston Basin. For that reason the drilling will go on longer than expected, the ultimate recovery per section will be adjusted upward, and, we will see that companies with significant acreage in "the Bakken" were undervalued from the beginning.

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  4. i have followed CHK for several months, i am looking for a long term Nat gas holding for my portfolio.
    this move in to WB is interesting.. Nat gas stocks have slowly traded lower in price the last month.. Interday on April 5 CHK was $ 34.22 and today may 4th it is closing at $ 30.72..
    The size of this company it will take a lot of acerage in one area to really move the needle, but it sure appreas like you also aquire a lot of geographical diversity with this play.

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  5. They must have a lot of confidence EPA is not going to rain on their fracking parade.

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  6. Isn't CHK to most sued company in the Marcellus for groundwater problems?

    This move may not be the best for ND/Montana.

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  7. With regard to CHK being the most sued company in the Marcellus, statistics are fun to deal with.

    I love to tell my children never to use pedestrian crosswalks -- that's where the most pedestrian fatalities occur. (That may or may not be entirely accurate -- lots of definitional qualifications, but it makes the point.)

    Thank you for taking time to comment.

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  8. What is the acreage count now of Chesapeake in the basin?. 1/25/2012

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    Replies
    1. The most recent data from Investopeida: CHK has 320,000 net acres in the Bakken with a target of 400,000 net acres.

      http://milliondollarway.blogspot.com/2010/10/areas-of-interest-in-bakken-by-producer.html

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