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Chesapeake Energy Corporation (CHK): The Company is Still Optimistic About the Utica

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The Utica — a shale formation underlying vast tracts of the Appalachian Basin — has attracted a significant amount of interest over the past couple of years. Though relatively little is known about its productive potential, encouraging initial test results in Ohio have drawn a bevy of energy companies into the emerging shale play.

Chesapeake Energy Corporation (NYSE:CHK) was the first entrant, having discovered the play back in 2010. Initially, the company was highly enthusiastic about the Utica’s potential. As late as May 2012, outgoing CEO Aubrey McClendon expressed a great deal of confidence that Chesapeake would report solid oil production numbers from its acreage in the play.

But by November, McClendon had changed his mind, suggesting that the Utica was unlikely to account for a significant portion of the company’s oil production going forward.

Despite this recent change of opinion, however, the company remains bullish on the play’s overall potential. McClendon even characterized the Utica as one of Chesapeake’s “foundational plays for decades to come.”

Chesapeake in the Utica
After discovering the Utica a few years ago, Chesapeake Energy Corporation (NYSE:CHK) remains one of the most active operators in the play. As it stands, it is the largest leasehold owner, boasting approximately 1 million net acres. To date, it has drilled a total of 184 wells in the play, of which 45 are currently producing.

Though production in the Utica over the past year was fairly insignificant, the company said it plans a “significant ramp up” this year. With 14 rigs currently operating in the play, Chesapeake expects output to reach as high as 55,000 boe per day by year-end.

Of Chesapeake’s total acreage in the Utica, roughly a third is thought to lie in an oil-rich zone. But, as Chesapeake Energy Corporation (NYSE:CHK) mentioned in its most recent earnings conference call, it will focus its future efforts primarily on drilling in the Utica’s wet gas window, inside of its joint venture with Total SA, where it boasts 450,000 net acres. Within this area, the company forecasts expected ultimate recoveries (EURs) of 5-10 bcfe.

Like the company’s operations in its other core holdings, especially the Eagle Ford, Chesapeake Energy Corporation (NYSE:CHK) has experienced substantial efficiency gains in the Utica. Average per-well drilling and completion costs have declined nearly 30% year over year, while spud-to-cycle times have come down to just 22 days, a nearly 40% decrease from 35 days a year ago.

Encouraging well results
A recent well that the company drilled in Carroll County — the Co 34-12-41H — posted a staggering 24-hour initial production (IP) of 2,225 boe per day, of which a third was liquids. Encouraged by the results, the company’s COO Steve Dixon commented in the fourth quarter earnings conference call: “We believe we’ve captured the industry’s largest position in the Utica, and look forward to solid results in this play for years to come.”

Though Chesapeake Energy Corporation (NYSE:CHK)’s wells have posted some of the best production figures to date, it’s not the only company seeing success in the Utica. Other operators’ horizontal drilling results – mainly in the play’s wet gas window – have also been promising.

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