Transcript Kevin McCotter - Che..> - Louisiana Tech University

Louisiana Tech
Energy Systems Conference
November 5, 2009
Chesapeake Energy
Industry Leader in the exploration and
development of domestic deep shale
gas resources
• “Best-Managed Energy Company” Forbes, January 2007
• Fortune 100 Best Companies to Work For 2008 & 2009
• 2009 Oklahoma Governor’s Pinnacle Award (Safety and Health)
• 2009 Compass Award (Outstanding Ethics)
• 2009 Natural Gas STAR Production Partner of the Year
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Chesapeake Energy
● Industry’s most active drilling program during 2009. The
company is currently using 105 operated drilling rigs to
develop its inventory of approximately 35,500 net drillsites
● Exceptional drilling success rate – 99%
● One of the largest independent producers of natural gas;
2.483 bcfe (Q3)
● Exclusively onshore and domestic
● Focused on natural gas
● Growth through drill bit and acquisitions
● Founded in 1989 NYSE: CHK
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Domestic Natural Gas Exploration and Production From
Deep Shale Formations is Chesapeake’s Focus and Expertise
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Gas-focused
Well-diversified
All onshore U.S.
Not in the GOM (high and dry)
Not in the Rockies (fewer political/environmental
hassles, better natural gas prices)
Not international (lower political risk)
Marcellus
Shale
Anadarko
Basin
Fayetteville
Shale
Counties with CHK leasehold
Mississippian & Devonian black shales
Barnett and
Woodford Shale
Plays
Permian
Basin
Barnett
Shale
Haynesville Shale
Ark-La-Tex
Delaware
Basin
Thrust Belt
CHK field offices
CHK OKC headquarters
CHK operated rigs (~94}
Scale: 1 inch = ≈275 miles
CHK non-operated rigs (~40)
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Haynesville Shale - Overview
● CHK discovered in 2007, the Haynesville Shale
is likely to become one of the two largest
natural gas fields in the U.S.
– Play encompasses approximately a 3.5 mm acre
area in northwest LA and east TX
● CHK is the largest leaseholder in the play with
~620,000 acres under control, primarily
focused in the core
– Currently operating 35 rigs in the play; plan to
top out at ~40 in ‘10
● Currently producing ~330 net mmcfe/day
(450 mmcfe gross operated) and anticipates
exceeding ~370 net mmcfe/day (500 mmcfe
gross operated) by year-end 2009. By the end
of 2010, ~500 net/ 670 gross. By the end of
2011, ~690 net/930 gross
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Haynesville Shale – Last 12 Months
● Significant accomplishments since October, 2009
– Increased rig count from 14 to 35 operated rigs (32% of industry total)
–Increased proved reserves from 135 to 714 bcfe
–Reduced average spud to rig release from 64 to 47 days
–Decreased average well cost from $9.5 million to $6.9 million
–Increased highest to-date IP rate from 14 mmcfe/day to 29 mmcfe/day
–Increased net production from ~50 mmcfe/day to ~330 mmcfe/day
–Increased total acreage to 620,000 acres
–Increased drilled and completed horizontal wells to 137
–Increased 3D seismic acquired from 53 sq miles to 348 sq miles
–Currently permitting or shooting 830 sq miles of additional 3D seismic data
● Secured 1.3 bcfe/day of firm transportation capacity for CHK production
● Created 1.1 bcfe/day of gathering capacity
● Over the past two years, CHK has rapidly shifted from
exploration to full-scale development and increased its rig
count from 1 rig to 35 rigs and is on its way to 40 rigs
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CHK is King of the Haynesville Core
● CHK discovered the Haynesville and from the
beginning targeted the Core
● In the past three years, CHK has built the
dominant leasehold position in the Core
● CHK has already HBP’d 88,000 net acres (17%)
of total 510,000 net acres
– Estimated HBP by YE’09 ~109,000 net acres (from
CHK operated wells only)
– Estimated HBP by YE’10 ~218,000 net acres (from
CHK operated wells only)
– Estimated HBP by YE’11 ~330,000 net acres (from
CHK operated wells only)
● 150 million years old
● 200-300 feet thick
● 2.0-2.5 miles below surface
● Targeted EUR of 4.5-8.5 bcfe per well (6.5 bcfe
mid-point EUR)
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Bossier Shale Overview
● CHK is the largest leasehold owner in the play
● CHK currently owns ~175,000 net acres of
leasehold prospective for Bossier Shale
● CHK’s initial Bossier Shale test, the Blackstone
26 H-1 had an initial production rate of 9.4
mmcfe/day on August 2, 2009; averaged 8.1
mmcfe/day in the first 30 days
● CHK’s leasehold position in the Bossier Shale
has risked unproved reserves of ~2.3 tcfe and
unrisked proved reserves of ~9 tcfe
● Currently drilling second Bossier Shell well,
Muench 10H-1, in southern DeSoto Parish
● Two additional industry Bossier Shale
horizontal wells are currently producing
● CHK has the industry’s largest combined resource potential in
the Haynesville and Bossier Shales
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CHK is also King of the
Haynesville/Bossier Shale Overlap Core
● CHK anticipates having an interest in roughly
80% of the wells drilled in the Haynesville and
Bossier Core area
● CHK is concentrated in geologically stable
areas where faulting and depth issues are
minimized
● Haynesville Core area has the best reservoir
characteristics within the entire Haynesville
play
● All of the wells that have IP’d at >20
mmcfe/day are in the Haynesville Core
● In addition, at 175,000 net acres, CHK has the
dominate leasehold position in the emerging
Bossier Shale Core and especially where the
two Core areas overlap in LA
● From Barnett to Haynesville to Marcellus, CHK has always
focused on leasing the highest quality rock – dividends from
this policy will pay off for decades to come
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Haynesville Shale –
Emphasis on Superpads
● Superpads
– Reduced surface impact
– Fewer rig moves
– 8 wells per superpad
– 16 wells per superpad in
Haynesville/Bossier stacked fairway
– 1 superpad per section
● Wells
– 80-acre spacing (8 per section)
– 660’ nominal wellbore spacing
– Single 4,500’ lateral
– Oriented north-south
● No current plans to drill multi-lateral
stacked horizontals due to too much
operational risk
● Gathering systems east-west along
section lines between superpads
● Design of drilling program minimizes surface impact and
maximizes getting leases held-by-production
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Haynesville/Bossier Shale - Summary
●Haynesville/Bossier Shale will likely become one of the two
largest natural gas fields in the U.S.
●CHK is the largest leaseholder in the Haynesville and Bossier
Shale plays
– CHK will likely end up participating in roughly 50% of all wells in the play
●Overall project has the potential to add ~39 tcfe of unrisked
unproved reserves to CHK
– Haynesville Shale upside is ~30 tcfe of unrisked unproved reserves to CHK
– Bossier Shale upside is ~9 tcfe of unrisked unproved reserves to CHK
●CHK net production projected to increase to ~370 mmcfe/day by
the end of 2009, ~500 mmcfe/day by the end of 2010 and ~690
mmcfe/day by the end of 2011
● CHK has the #1 position in the #1 play in the U.S.
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Impact of the Haynesville Shale
● Chesapeake currently conducts business with over 250 local Louisiana companies
for our operations in the Haynesville
● Industry’s Economic Impact in 2008
– Generated approximately $2.4 billion in new business sales within the state of Louisiana.
– Created nearly $3.9 billion in household earnings.
– Generated an increase of 32,742 new jobs within the state in 2008. As a reference
point, this is slightly larger than total employment in all of Louisiana’s banks and credit
unions. The job multiplier is remarkably large in this case due to the fact that $3.2 billion
in lease and royalty payments were injected into the state’s economy by the extraction
firms.
– Increased state and local tax revenues by at least $153.3 million due to the extraction
activities in the Haynesville Shale.
● Chesapeake’s Community Activity – Together WE ALL WIN!
– Growing list of partners in NW Louisiana
– Scholarships, vehicle donations, and community sponsorships,
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Astute Federal Policies Will Allow Natural
Gas to Be the Clean Energy “Bridge”
● Natural gas is an affordable alternative to imported oil and gasoline and
supports the use of such intermittent renewables as wind and solar with
clean baseload
● When used directly as CNG, natural gas provides
– Up to 30% fewer C02 emissions
– Up to 70% fewer smog-forming pollutants
– An answer to a carbon regulated world
 Transportation sector emissions represent 40-70% of all pollution
OR
● Natural gas can be used indirectly as the power behind the “plug”
– PHEV’s and EV’s will require “clean” power for optimal environmental
benefit
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Compressed Natural Gas (CNG) The Energy Answer!
• CLEAN
– Produces 93-95% less overall toxics and reduces greenhouse emissions
by 20-30% compared to gasoline and diesel vehicles.
• AMERICAN
– 98% of the natural gas use is produced in North America. We purchase
70% of our oil from foreign nations.
• ABUNDANT
– Natural gas reserves continue to be discovered and increase each year.
The U.S. has enough natural gas to last for 120 years and beyond.
• AFFORDABLE
– CNG costs on average are over one third less than conventional gasoline
at the pump.
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Compressed Natural Gas (CNG) –
The Energy Answer!
NATIONAL SECURITY
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The U.S. controls 4% of the world’s oil reserves yet we consume 25% of the total
global production
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American producers control all of our needed natural gas reserves.
ENVIRONMENTAL
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40 – 70% of emissions are from the transportation sector
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Non-attainment will adversely affect economic stability.
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Health problems created by transportation pollution will increase medical costs.
AMERICAN ECONOMY AND THE AMERICAN CONSUMER
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Create jobs and new businesses
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Louisiana’s Leadership – Paving the Way
for Clean Natural Gas Vehicles
Empowering America
● Louisiana CNG Legislation
– CNG legislation increases the personal income tax credit from 20% to
50% for conversion equipment on vehicles
– 20% to 50% credit increase on fueling infrastructure
– Increases income tax credit to $3000 for purchase of dedicated
vehicles.
– Repeals prohibition for a business to receive both a Quality Jobs
income tax credit and our CNG credit.
This landmark legislation will be an adrenaline shot to the market in
Louisiana – propelling Louisiana to a leading clean energy state
Shreveport –Bossier City as model “Clean City” in the U.S.???
Current examples of natural gas vehicles
Using NGVs in the Heavy Duty Class Will Enable Stable Supply and Demand Growth
While Reducing Emissions and Keeping Billions Of Dollars in the US
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Compressed Natural Gas (CNG) –
The Energy Answer!
CNG VEHICLES
STATIONS
NGVs / STATION
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Argentina
1,650,000 (12%)
1,400
1,180
2
Pakistan
1,550,000 (54%)
1,606
965
3
Brazil
1,425,513 (26%)
1,442
988
4
Italy
432,900 (12%)
558
775
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India
334,820 (34%)
321
1,043
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Iran
263,662 (82%)
179
1,472
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Colombia
203,292 (65%)
310
655
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USA
146,876 (9%)
1,340
109
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China
127,120 (24%)
355
358
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Ukraine
100,000 (33%)
147
680
(Annual Growth Rates 2005 -2007)
Growing Markets: Germany, Sweden, Japan
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Recent Developments
SporTran/Bossier/CATS
AT&T to Invest up to $565 million in natural gas, hybrid vehicles
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AT&T will purchase 15,000 new vehicles over the next 10 years. The majority of vehicles
acquired will be natural gas vehicles, especially the heavier trucks.
Louisiana Act 469
– Will increase personal and corporate income tax credits for use of CNG
NAT GAS Act of 2009
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Sponsored by Rep. Dan Boren (D-OK) and John Larson (D-CT)
Congressional Natural Gas Caucus
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“Phill” is Right at Home
● Using the home refueling station, fuel costs drop to
approximately 60% of gasoline
● State and federal tax credits can offset or even
completely cover the initial purchase price.
● Benefits:
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Convenient – re-fuels a typical compact car overnight.
Quiet – produces no more noise than an air-conditioning
unit.
Economical – uses no more electricity than an average
small appliance.
Flexible – easily mountable inside or outside a garage.
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QUESTIONS?
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Contact Us
J. Kevin McCotter
Director – Corporate Development
318.674.7201
[email protected]
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