Faced with decade-low natural gas prices that have made some drilling operations unprofitable, Chesapeake Energy Corp. says it will drastically cut drilling and production of the fuel in the U.S.Some suggest this may free up some workers.
Drillers had already begun to shift their drilling activity toward shale formations and other regions that produce oil and other liquid hydrocarbons. Strong global demand has kept oil prices high and made these drilling operations extraordinarily profitable.
Chesapeake said it would cut its current activity in so-called dry-gas regions by half, to 24 rigs, by the second quarter. That's 67 percent fewer rigs than an average of 75 rigs the company had in use last year.
I wonder if this could free up some frack spreads. If so, North Dakota could benefit. I would assume fracking shallower natural gas wells is different than fracking deep oil wells in the Bakken, but I suspect the skills are transferable. The equipment would be different.
Haynesville wells are deep and tough. They require more horsepower than Bakken wells, and are tough on equipment.
ReplyDeleteBarnett are easier.
Marcellus rigs might move from NE PA to SW PA and WV, liquid rich wells, with the same partner, STATOIL.
TOTAL is the partner in the Barnett and Utica. Rigs and money might transfer to Ohio.
Plains is the Haynesville partner. They want to minimize gas drilling for now.
CHK did not mention the WB, but it is on their mind.
The big drag on the industry is that cash flow from gas is down. Cash is needed to drill.
A lot of gas acreage is now HBP.
This move is a preview of what will happen in the WB if oil goes to $20. Anyone who build a business or building in the WB boom can hedge by purchasing oil puts for, say 2015 to 2025.
anon 1
Thank you; that's a great help for folks trying to figure out where the rigs could go.
DeleteI can imagine the price of oil going almost anywhere -- it's the nature of the industry, but Saudi setting a target of $100 recently is a good omen.
I have trouble believing that the tsunami of light crude oil production through 2016 will put that much downward pressure on the price of oil. Growth of China and India will counter the supply. But I could be wrong. It will be a wild ride.
I believe that the Bakken and Eagle Ford shale plays will feel the effects as the industry shifts away from gas exploration. These oil plays should experience additional epuipment as well as manpower. This shift could prove to be a very positive factor for the operators trying to meet lease expirations in these shale plays.
ReplyDeleteI agree 100%. I think you are correct. Although it will add more challenges to the infrastructure: housing, roads, etc.
ReplyDeleteCHK in Stark And Hettinter counties. Drilled a couple of wells - more permits in that area - what is their plan if gas isn't profitable ???
ReplyDeleteThe Bakken is not a gas field. CHK is not drilling for natural gas in the Bakekn. No one is drilling for natural gas in the Bakken. Natural gas is a miserable by-product for the oil producers -- it is causing them nothing but grief due to cost of gathering it so it isn't flared.
DeleteFortunately, companies like ONEOK have stepped up to the plate and have figured out how to make a profit with this by-product. Click on "ONEOK" in the labels/tags at the bottom of the blog.
But again, the Bakken is not a natural gas field. The natural gas accounts for 4 percent of the economic value of the oil/gas that is being produced; once processed, I understand the economic value is as much as 8 percent of the total Bakken activity.
The bigger issue is what happens if CHK does not come up with some great oil wells in southwest North Dakota. They have at least three formations to target: the Three Forks, the Tyler/Heath, and the Lodgepole. The Bakken formations are not significant target zones in this part of the Williston Basin.
I believe that if CHK gets serious about the Bakken, they have the required capital to purchase prime acreages from other smaller operators who hold these valuable areas. Also, there are areas which are not held by production and the lease expiration dates are nearing so top leasing may play into the picture for CHK if they desire to venture that direction.
ReplyDeleteYes. You are correct.
Delete"Anon 1" knows CHK very, very well and he will correct what I'm about to say, but this is what I remember.
CHK was in North Dakota at one time and then left (before the current boom). The CEO admits they left early and so, when they decided to return to North Dakota, they were going to do it differently than the other operators. He did not specify.
So far, it looks like CHK is nibbling around the edges, to see what the Three Forks will do for them in southwest ND. Unfortunately, we haven't seen much yet. But as noted earlier, there are at least three promising formations in this area: Three Forks, Tyler/Heath, and Lodgepole.
The Lodgepole reefs are very, very hard to hit, and it doesn't appear that CHK is going after these elusive "chimneys."
The Tyler/Heath is supposedly more continuous, like the Bakken, but even with the Tyler/Heath it seems there are some good areas and areas not so good. So, it's hard to say.
I wish I knew more about CHK success/lack of success in this area, but we probably won't know more until later this year.
You are so correct about opportunity to buy up smaller prospects, but only if they start seeing some success. But they could always go back to the Bell/Zenith/Dickinson fields if they need to -- although Whiting may have the Bell/Zenith tied up.
CHK doesn't intentionally buy fringe acreage. They buy core.
ReplyDeleteThey bought core acreage in the _______ play. They haven't announced what goes in the blank.
A few months ago I listed the horizons listed as prospective in their first applications. Several.
Those wells are three forks. But the science covered more layers.
They are moving more slowly than earlier indicated. They have other plays and are probably making lots of money on NOMAC rigs drilling for others, which had some term contracts inherited from Bronco.
At first I said CHK might lease 500,000 to 1,000,000 acres and would be the top story of 2012.
Acreage update in YE 2011 report in February.
Production info to come.
The news release and a video:
http://www.chk.com/news/articles/Pages/1651252.aspx
Another state lease sale, and private leasing. If results are great, no desire to talk about them.
In the DUO video I linked a while back Aubrey mentions drilling ND and SD Red River wells, but before well stimulation was invented for them. Didn't work well.
CHK bid on a couple of Bakken players, but was outbid a few years ago. Big misses, and it bugs them.
CHK is operating almost 200 rigs so this move is small. CHK is becoming a big oil company, but will still be a huge gas company. And huge NGL company
anon 1
Again, much appreciated. I apologize that you have to write so much to correct/improve what I wrote. You have the big picture and the details. I mostly have the "big picture" (what I refer to as my "myth") and over time it gets tweaked. But I am weak on attention to detail.
Delete