Chesapeake Energy Corporation (CHK) Reducing Per-Unit Production Costs

Page 1 of 2

On Feb. 21, Chesapeake Energy Corporation (NYSE:CHK) surprised Wall Street by beating estimates on both top and bottom lines. The company’s latest earnings call was focused on increasing profitability by shifting production from gas to liquids to boost revenue, and becoming more efficient to lower costs. To meet its efficiency goals the company intends to reduce capex and lower per-unit costs by transitioning to pad drilling.

Transition to pad drilling

Pad drilling might sound like a fun game for tablets, but it actually refers to a technique that allows rig operators to drill several wells at a time. After drilling one well rigs typically need to be taken apart, loaded on a truck, transported to the next location, then reassembled. Pad drilling significantly boosts a crew’s efficiency because the rig is simply nudged a few yards along the pad where it begins a new well.

Chesapeake Energy Corporation (NYSE:CHK)On the surface, there may appear to be a single well, but underground there can be as many as ten horizontal wells lying parallel to each other. During the life of the well, costs associated with capturing and transporting are also reduced. During the Q4 2012 earnings call, Chesapeake Energy Corporation (NYSE:CHK) COO Steve Dixon claimed that the company is targeting capital efficiency gains of at least 15-20% as they transition to pad drilling techniques.

Getting more and spending less

During the fourth quarter of 2012 Chesapeake connected 98 wells in the Eagle Ford Shale. The company expects to continue at the same rate of about one hundred wells per quarter in that area, but intends to reduce the overall rig count by 14. During Q4 2012 the average time between starting wells — spud-to-spud time — was 18 days. During the same period in 2011, that time was 26 days. That’s about 30% faster, and not surprisingly about 30% less expensive.

So far this year spud cycle times continue to decrease. Recently, in the Eagle Ford Shale, a Chesapeake crew finished a well in just 8 days. Looking ahead to 2014, the company expects to increase the percentage of wells drilled on existing pads by more than threefold compared to its estimates for 2013.

Chesapeake is not the only company enjoying pad drilling savings

Also operating in the Eagle Ford Shale is Pioneer Natural Resources (NYSE:PXD). During its Q4 2012 earnings call, the Irving, Texas based independent producer noted it expects to drill about 130 new wells in the Eagle Ford Shale this year. By employing pad drilling techniques it expects to save between $600,000 and $700,000 per well, a savings of more than 10%.

Independent oil and gas producer Devon Energy Corp (NYSE:DVN) has also been enjoying increased efficiency by using pad drilling techniques. During its Q4 conference call the company reported a spud cycle time reduction of more than 20% year-on-year in the Cana Woodford Shale.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!