Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Chesapeake Energy Corporation (CHK): The Utica’s Potential Glimpsed in Its Results

After discovering the Utica Shale in 2010, Chesapeake Energy Corporation (NYSE:CHK) was initially highly optimistic about the play’s hydrocarbon potential. Though it has since dialed back its expectations, its most recent well results in the play are highly encouraging.

Chesapeake remains the largest leasehold owner in the play, commanding roughly 1 million net acres. It is also by far the most active driller, having drilled more than 240 wells to date – representing about three-quarters of all wells drilled in the entire play.

However, due to infrastructure constraints, the company is selling production from just 54 of those wells and is therefore only producing 75 million cubic feet of gas equivalent per day net to the company.

Chesapeake Energy Corporation (CHK)

Chesapeake Energy Corporation (NYSE:CHK) expects infrastructure constraints to ease substantially, which it reckons should allow for a substantial ramp-up in production.

Infrastructure additions bode well for Utica production
A few of the coming improvements in gas processing infrastructure will include Dominion Resources, Inc. (NYSE:D)‘s natrium processing plant in Marshall County, W.V. – expected to go on line shortly – and three processing trains at Momentum’s Kensington plant in Columbiana County, Ohio, two of which are expected to be operational before the end of the year.

Chesapeake Energy Corporation (NYSE:CHK) is not alone in pointing out the Utica’s lack of processing infrastructure as a major hindrance. Several operators, including CONSOL Energy Inc. (NYSE:CNX), have cited infrastructure constraints as the single biggest reason for Utica producers’ reluctance in bringing new wells on line.

But that looks set to change shortly, as a handful of companies are eager to provide Utica producers with the infrastructure they so desperately require. For instance, midstream company Williams Partners L.P. (NYSE:WPZ), through a 48% stake in a privately held company, plans on shelling out roughly $380 million over the next couple of years on a joint venture with Dominion Resources, Inc. (NYSE:D) that will provide pipelines and processing services to Utica producers.

Chesapeake’s Utica wells
As evidence of the play’s potential, acting CEO and COO Steve Dixon highlighted recent well results in Carroll County, Ohio: “We drilled six wells from a common pad with average 24-hour stricted test rates of 1250 BOE per day, which includes 310 barrels of oil. 200 barrels of NGL with ethane not recovered and 4.4 mmcf of natural gas per day. This is a flowing tubing pressures exceeding 3000 [PSI].”

He added that well production data recently submitted to the Ohio Department of Natural Resources, in compliance with the department’s annual disclosure of Ohio production data, is “not indicative of the productive capacity of the initial wells drilled.”

Assuming the timely start-up of crucial gas processing infrastructure in subsequent months, Chesapeake Energy Corporation (NYSE:CHK) reckons it can produce more than 330 million cubic feet of gas equivalent or 55,000 barrels of oil equivalent per day from the Utica by year’s end. That implies production would more than quadruple from current levels.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.