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Friday, April 15, 2011

Is Something Big in the Bakken Happening With Regard to Chesapeake?

I reported earlier today that Chesapeake had technically entered the Bakken by buying Bronco drilling which has about ten (10) contract rigs in North Dakota. As noted, technically that puts CHK into North Dakota but still only a peripheral player.

However, after posting that, "anonymous" commented that CHK had acquired 150,000 acres in North Dakota (corrected: I had originally said "the Bakken. "Anonymous" and CHK both say "North Dakota," not "the Bakken"). I completely missed that story, but it appears that I was not the only one. Here is a blog entry from Energy Connections:
Chesapeake Energy is a major player in the horizontal drilling of shale plays in almost all US plays, except the Bakken.  That might be starting to change with this latest development between Bronco Drilling and Chesapeake. With a price tag of $315 million, a deal has been made between the two companies.  Bronco Drilling currently owns 22 rigs, these rigs are mostly in the Bakken and the Anadarko basin.  Chesapeake may not own mineral acreage in the Bakken but one can bet that their involvement through the drilling services will be noticed in Bakken.
Well, it turns out that "anonymous" comment that CHK had acquired 150,000 acres in North Dakota (corrected; see above) is correct. See CHK's April, 2011, corporation presentation, slide 3:
CHK established a >150,000 net acre position in the Williston Basin at an attractive cost.
In addition, "anonymous" hints that there will be more to follow. In the same CHK presentation, this little nugget:
  • In just the past 18 months, CHK has captured leading positions in 5 of the 6 best
  • unconventional oil plays in the U.S.
  • #2 in the Eagle Ford with 445,000 net acres and 3.0 bboe of unrisked unproved resources
  • #2 in the Niobrara with 535,000 net acres and 3.4 bboe of unrisked unproved resources
  • #1 in the Anadarko with 1,460,000 net acres and 4.9 bboe of unrisked unproved resources
  • #1 in the Permian (unconventional) with 560,000 net acres and 1.3 bboe of unrisked unproved
  • resources
  • #1 in an unnamed big liquids play (details to come later in 2011) with >1,000,000 net acres
Chesapeake will be announcing sometime later this year a deal involving more than 1 million net acres in a liquids play somewhere in the states, most likely the lower 48, and I've had two "anonymous" comments (maybe the same individual) suggesting we could see CHK taking a larger position in the North Dakota (correct; see above). There are no single North Dakota players that I know of that has 1 million acres. CHK would have to buy more than one leaseholder in North Dakota (corrected; see above) to get a million acres here.

********
Closing up loose ends:

According to CHK's 3Q10 earnings conference call, three things:
  • CHK announced 100,000-net acre acquisition in North Dakota (corrected; see above) (I missed that until now)
  • CHK said it had a one-million-acre acquisition that will have worldwide interest, but can't announce it until in 2011
  • CHK said it won't state publicly who it acquired the 100,000 net North Dakota (correct; see above) acres from, but specifically and emphatically said it was not Anshcutz (it appears my assumption that OXY USA bought Anshutz acreage in the Bakken is accurate)
I really appreciate comments from my readers.

By the way, back in 2008, Continental Resources acquired 4 million bbls of proved reserves from Chesapeake in the Bakken, according to the Motley Fool:
Continental Resources, which was early into the [Bakken] play, topped up its position in January, 2008], with a $60 million purchase of producing properties from Chesapeake Energy. Continental picked up 4 million barrels of proved reserves at $15 million a pop.

15 comments:

  1. CHK -
    They now have in-house control of a significant amount of drilling rigs as noted in this release:

    "Following the closing of the transaction, Chesapeake will integrate Bronco's 22 rigs into Chesapeake's wholly owned subsidiary, Nomac Drilling, L.L.C., which currently owns 95 drilling rigs available for service, of which 90 are currently drilling under contract for Chesapeake. The company is currently operating a total of 160 drilling rigs and plans to end 2012 utilizing approximately 200 drilling rigs. Chesapeake believes that the acquisition of Bronco should satisfy the vast majority of Chesapeake's anticipated rig investment needs through 2012."

    What exactly are their "needs" through 2012? Many of their rigs are used elsewhere in their fields but economics may have them moving more towards the Bakken, and sooner rather than later with oil at ridiculously high levels of profitability...how fast can you maneuver more rigs in place - 2 months, 6 months??

    Another question is do they need more acreage?
    And if they are in a gobbling mood, who gets gobbled up? Look for an undervalued junior with good acreage and, more importantly, permits reaady to go with just a change of name.

    Any theories on who may be a good candidate?



    Bakken Brett

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  2. Great comment, thank you for taking time to comment.

    I would not even want to hazard a guess. Unless I missed something, we don't even know from whom they got the first 150,000 acres. In the 3Q10 earnings call, they said they acquired 100,000 acres in the Bakken but would not say who from (except to say it was NOT Anschutz) and then in April, 2011, corporate presentation, they had another 50,000 Bakken acres, again, from whom we do not know. And I doubt it was bits and pieces. That would take too much work and too much time.

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  3. Oh, shoot! I missed it; you beat me to it. I've been looking at total rigs every 6 hours or so, and just now I was out on an errand and missed it.

    Good for you to have caught it and beat me "to the punch" as they say!

    Thank you for taking the time to comment.

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  4. Bruce I do know they have had a leasing team in the Dickinson area for 10 months or so. Aquired a lot of Agribank acres at auction also. May all be cheap in house acres.

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  5. Very interesting. Pieces of the puzzle are being filled in.

    CHK said they would release details in first half of 2011. This is April. The first half ends in less than three months!

    Thank you for taking time to comment.

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  6. Bruce, I said ND. I did not say Bakken.

    CHK said Williston Basin.

    CHK map shows ND.

    I did not say Bakken, nor did CHK.

    CHK leases, or buys leases, but generally does not acquire companies. It bought leases with no production in the Williston Basin.

    CHK has been known to lease in a big way. Bigger than you can imagine.

    100,000 acres is a small amount - hardly worth mentioning.

    The 200 rigs might not include any ND rigs. They are running 150 today, with several plays ramping up.

    See CHK April presentation, pages 8, 9, 12, 14, 16, and 17.

    CHK has barely mentioned ND. The projections may not include anything from that play.

    They may have 250 to 500 rigs running by 2015 or so, with or without ND.

    The big "unannounced" CHK play is in Eastern Ohio, Western Pennsylvania, and thereabouts. Also Michigan.

    Lots of other stuff, seen and unseen.

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  7. Thank you for the clarification. I have no hidden agenda; I'm just trying to put information out there for readers. When I make mistakes, I really appreciate folks letting me know.

    There are two things being followed right now, the 150,000 acres in North Dakota; and, the 1,000,000 acres elsewhere:

    a) 150,000 acres: It's a parlour game among some of us trying to figure out from whom CHK acquired 150,000 acres in North Dakota. For CHK, 150,000 acres may not be a big deal, but for those following the oil industry it's a big deal. Rigzone publishes stories when as little as 10,000 acres change hands in the Bakken. We may never know but if no production was included in that 150,000 acres, it eliminates some possibilities. But they did acquire 150,000 acres in North Dakota.

    b) The 1,000,000 acres: My exuberance over the Bakken got ahead of me, but I have to agree, the 1,000,000-acre story is probably elsewhere.

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  8. Chk, Management team is fully committed to exploiting non traditional basins, the change in tactics from being a seller of ND acerage with proved reserves to CLR to becoming a huge buyer of acreage demnstrates adaptability.

    CHK now understands the role of nucleation in laying in oil. They have a lot of data that for years was not being interpreted correctly, as do a whole host of the big players.
    OXY's proclaimation that they do not Wildcat, sort of brought the hammer down. CLR suggests that 200 Rigs will net 1 million BD, is probably an underestimate. If CHK marshalls 200 rigs and assembles the teams needed following the BEXP methodology makes perfect sense.

    The entire oil industry is being re shaped, capital flows demonstrate this more than any other single factor. In all economics there is one overriding truth; The variable Time shapes of Capital, always gets it right.

    Awareness about oil is a function of adaptation. Companies who do not adapt, will be left behind.

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  9. I think CHK could also have their eyes on the thousands of acres in both ND and Montana which are currently under lease with the expiration dates nearing. I am sure they are not opposed to top leasing.

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  10. By the end of 2011 we should have a lot more information but if CHK moves into North Dakota significantly, it will be yet another game changer.

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  11. If CHK is real serious about ND, they will have an army of landmen camped out at the CC offices in various counties for several months. If this occurs, the negotiating bonuses for new leases will only get higher. CHK has been a serious player in all their previous ventures.

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  12. I won't argue, but CHK has so many irons in the fire, they may have to prioritize things. But I am as curious as you are how this works out.

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  13. Could CHK have done a deal for federal land? Minot AFB is pretty big, cant see how laying in wells there would disrupt too much of the mission statement. Roads and infrastructure already there and most probably underutilized.

    DOD could make such a deal? In the face of impending cuts, they might appropriate resources to purpose a less dramatic budget outlook, lets face it, with near 0 dry holes, this appears to be a no brainer.

    just some random speculation...

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