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Chesapeake Energy and its former CEO suggest huge Utica potential

Ingrid Pan, CFA

Why investors should pay attention to the Utica Shale oil play (Part 2 of 7)

(Continued from Part 1)

Chesapeake Energy and the Utica Shale

The Utica Shale is an emerging play located primarily in eastern Ohio and western Pennsylvania. The play gained publicity in late 2011, as Chesapeake Energy (CHK) revealed that it had been purchasing acreage rights in the area. Aubrey McClendon was the former CEO of Chesapeake, but he recently left the company because investors were unhappy with his management. Since his departure, the former CHK head has lined up ~$1.2 billion in financing for investment in Ohio, according to an article in the Wall Street Journal. McClendon now heads a new company, American Energy Partners, which has acquired Ohio assets from EnerVest Ltd. and affiliate EV Energy Partners LP (EVEP) as well as Royal Dutch Shell (RDS.B).

High potential

The fact that McClendon is investing such huge sums of money in the area shows the potential of the play. McClendon has had extensive experience in the upstream oil and gas industry, having built Chesapeake from the beginning until his ouster into one of the largest independent energy companies in the United States. Plus, because CHK is one of the most active players in the Utica Shale, McClendon would have been privy to much information about the potential of the play. As he’s trying to build a new company, the ex–Chesapeake head could have chosen any area to operate in, but it looks as if he’s making a large, fundamentally unilateral bet on the Utica Shale. This should be a strong signal to the market and other energy players as to the potential of the Utica Shale.

Latest Utica Shale statistics

Chesapeake is the largest player in the Utica Shale at the moment. In its 2Q13 results, it gave the following update on the play.

  • 85 MMcfe (millions of cubic feet equivalent) per day of production in 2Q13
  • Average daily peak production of 42 wells producing in Utica in 2Q13 of ~6.6 MMcfe per day
  • 11 rigs in the Utica, 10 by year end 2013
  • As of June 30, 2013, 321 wells in the Utica (106 producing, 93 waiting on pipeline connection, 122 in various stages of completion)

Continue to Part 3

  • Part 1 - Introduction: The Utica Shale is an important emerging oil play
  • Part 3 - Which major players are investing in the Utica Shale?
  • Part 4 - Which major players are investing in the Utica Shale? (Continued)