Wednesday, May 4, 2011

Chesapeake hunting for JV partners for Utica and Mississippian plays.. Coming up billion dollar JVs!!

Chesapeake has reported in its Q1-2011 report that its leasehold has reached 1.2 million net acres in the Utica Shale Play in the Appalachian Basin and 1.1 million net acres in the Mississippian Carbonate Play in Northern Oklahoma and Southern Kansas. The company expects to initiate a joint venture process in the 2011 second half for both the Mississippian and Utica plays. In addition, the company has sold 180 Bcfe of reserves through ninth VPP for approximately $845 million. The sales are as part of their 25/25 plan - reduce debt by 25% and increase production by 25%.

Utica Shale Play:
In 2010, the company was the first to identify the potential of the Utica Shale and to initiate large scale leasing efforts in Ohio and western Pennsylvania for the Utica. To date, the company has drilled nine operated Utica wells and is currently drilling with three operated rigs. Chesapeake plans to increase its operated drilling activity in the Utica to six rigs by the end of the 2011 third quarter. Proved reserves are not yet booked for this acreage position.

Mississippian Play:
In 2007, the company was the first to initiate large-scale horizontal drilling in the Mississippian Carbonate play in northern Oklahoma and southern Kansas. To date, Chesapeake has drilled 53 operated Mississippian horizontal wells and has participated in the drilling of 36 non-operated Mississippian horizontal wells on its inventory of approximately 1.1 million net acres. Chesapeake is currently drilling with five operated rigs in the Mississippian play and plans to increase its operated drilling activity in the Mississippian to seven rigs by the 2011 fourth quarter.

Following is the table showing all the unconventional JV deals of Chesapeake

Total value of the package is estimated as follows -

Utica Shale (1.2 million acres):
  • Considering that Chesapeake will sell 30% interest (consistent in all Chesapeake JVs) in its Utica position, the number of acres under valuation is 360,000 acres. Chesapeake, in its Q1-2011 transcript call, disclosed that the company acquired Utica acreage for $1,500/acre. Taking a premium side, it is believed that Chesapeake would sell Utica acreage at $2,000-$2,500/acre or $720-$900 million. $2,000-$2,500/acre is also consistent with the recent Gulfport Energy's acquisition in Utica Shale ($2,300/acre).

Mississippian Play (1.1 million acres):
  • Chesapeake's Mississippian play constitutes 55% of its total Anadarko Basin acreage position. The proved and risked unproved reserves for Mississippian play are approximately taken as 50% of the total Anadarko Basin proved reserves (2,184 bcfe) and risked unproved reserves (12,900 bcfe).
  • Considering that Chesapeake will sell 30% interest in its Mississippian position, the acreage position, proved reserves and risked unproved reserves under valuation are 330,000 acres, 328 bcfe (~55 mmboe) and 1935 bcfe (~323 mmboe).

-- Value based on acreage and proved reserves: It is reported in Chesapeake’s Q1-2011 transcript call, that Utica acreage is more expensive than the Mississippian acreage. Therefore, the acreage cost for Mississippian play is taken half of the Utica acreage cost. At $1,000-$1,250/acre and $10/BOE of proved reserves, the value of the asset to be sold would be $880-$960 million.
-- Value based on acreage and risked unproved reserves: At $1,000/acre and $1.5/BOE of unproved reserves, the value of the asset to be sold would be $810-$900 million.

Hence, the total value of the assets to be sold could be in the range of $1,500 million to $1,800 million.

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