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  #31  
Old September 16th, 2011, 10:57 AM
A317 A317 is offline
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Are companies like EOG and CHK a good indication of the entire industry? -- Cutting back on dry gas and increasing oil/liquids. Just trying to get an indication on if ng production is actually going to decline anytime soon. If everyone is leaving natural gas in favor of oil then we should start to see a change in supply.

Also, is the move away from gas to oil an indication that natural gas production is not profitable currently? Or is oil just so much more attractive they are moving their limited drilling resources to focus where the money is better?
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  #32  
Old September 16th, 2011, 12:11 PM
Chipps Chipps is online now
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As far as I can tell they are just drilling to generate cash flow to stay in business long enough to be the last one in existence.
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  #33  
Old September 19th, 2011, 07:30 AM
DMOSHER DMOSHER is offline
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Originally Posted by Chipps View Post
As far as I can tell they are just drilling to generate cash flow to stay in business long enough to be the last one in existence.
What is strange is that investors are still rewarding this type of behavior with high company valuations. They are so used to valuing a company on growing reserves and production volumes they forgot how to calculate what they are actually selling that production for. So the E&Ps get direction from shareholders, who are so far happy with them producing at or below cost, and they continue aggressively exploring and producing despite the economics. The oil and gas industry has been plagued with boom-bust cycles throughout history. IMO high oil prices have helped delay the 'bust' but it is coming. This is a house of cards.
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  #34  
Old September 22nd, 2011, 09:50 AM
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McClendon Values Utica Shale at Half a Trillion Dollars, NGI Reports
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Press Release Source: Natural Gas Intelligence (NGI) On Wednesday September 21, 2011, 6:48 pm EDT

DULLES, Va.--(BUSINESS WIRE)-- The Utica Shale could be worth $500 billion, and the "biggest thing economically to hit Ohio, since maybe the plow," Chesapeake Energy Corp. CEO Aubrey McClendon told an audience in Ohio on Wednesday, according to a report by Natural Gas Intelligence (NGI).



"I prefer to say half a trillion," McClendon said at the Ohio Governor's 21st Century Energy & Economic Summit in Columbus. "It sounds bigger." While admitting that fluctuating commodity prices make it difficult to estimate value accurately, McClendon called his estimate "reasonable."



Although merely an estimate and not a scientific analysis, the figure is among the first offered for the infant Utica. McClendon previously turned heads by saying the Utica "is likely most analogous, but economically superior to, the Eagle Ford Shale in South Texas."



"We started to look at Utica in Ohio here about two years ago and arrived at two conclusions: One, it's big. Two, a lot of the acreage on it was owned by EnerVest," McClendon said, pointing to EnerVest Ltd. CEO John Walker. "We'd always been friends, but I got chummier."



"Now we're best friends," Walker said.



EnerVest is the leading conventional oil producer in Ohio. Chesapeake and EnerVest formed a joint venture recently to explore the Utica, but each company is also exploring outside of that joint venture. Chesapeake spent $2 billion on its 1.25 million acres in the play.



McClendon also continued his role as the shale industry's most aggressive promoter, telling two opponents to hydraulic fracturing as he entered the Ohio auditorium: "I'm the biggest fracker in the world. I've done it 16,000 times since 1989 and I'm proud of it," before elaborating that his "plan" involved increasing jobs, lowering the cost of energy and helping the country become energy independent. "So what is your plan?" he asked.



When they told him they want the energy supply to come from renewable fuels, he said, "It's not reality. It can't happen."



Chesapeake is comparing the Utica to the Eagle Ford because both plays have dry gas, wet gas and oil windows, allowing both plays to remain economic even at times such as now when natural gas prices are depressed, but unlike the Eagle Ford, the Utica is still too new to measure, McClendon said.



"We know it's big. How big is big? We don't know and I can't put volumes on it yet," he said. That said, Chesapeake plans to drill as many as 12,500 wells in the Utica and McClendon expects around 10 companies to compete in the play, investing as much as $200 billion in Ohio over the next 20 years. Chesapeake is currently running five rigs in the Utica and plans to gradually increase that to 40 rigs by 2014, but McClendon said Ohio should expect more than 100 rigs in the Utica at full buildout. CONSOL Energy Inc. and Hess Corp. recently formed a joint venture in the Utica and Anadarko Petroleum Corp is getting drilling permits.



To read the full story, learn more about the shale gas revolution and view the latest shale gas prices, visit http://shaledaily.com/ and sign up for a free trial.
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  #35  
Old September 22nd, 2011, 10:00 AM
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Yes, Utica is the next big hype. Everyone is positioning for acreage and the HBP process is beginning all over again. The problem is it still will produce a tremendous amount of dry gas. When will the madness end? Maybe once we have successfully drained every cheap gas field.
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  #36  
Old September 22nd, 2011, 10:06 AM
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It is the structure of such a competitive industry that bodes well with quick depletion of resources. E&P companies are price takers and not price makers. Each company operates under the assumption that they will be selling their product for whatever is the market value at the time. So they each make their own production goals regardless of what other companies do, assuming that their incremental supply growth will do very little to influence market pricing.
It is a game in which the more you produce the more you make.
The only thing that will stop them is running out of money.
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  #37  
Old October 6th, 2011, 10:57 AM
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interview with Aubrey

http://www.forbes.com/sites/christop...-25-questions/
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  #38  
Old October 7th, 2011, 04:02 PM
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more with Aubrey
http://www.forbes.com/sites/christop...dcatter-shale/

"For instance, the company needs natural gas prices of only $2.25 per thousand cubic feet to break even in the Marcellus (prices are currently around $4). But in Louisiana they need $3.50 and in Texas, $4.50."

Last edited by jay4u; October 7th, 2011 at 04:12 PM.
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  #39  
Old October 21st, 2011, 02:41 PM
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Aubrey McClendon Versus The 'Fracktivists'




This is a companion piece to my profile of Chesapeake Energy’s wildcatting Chief Executive Aubrey McClendon, appearing in the new issue of Forbes Magazine.

Last April Chesapeake Energy suffered a blowout on a natural gas well it was completing in the Marcellus Shale of Pennsylvania. Within two days the company had plugged the well. There was no fire, no injuries, but several thousand gallons of chemical-tainted water spewed out, and a few hundred gallons got into a creek.

The incident–which Chesapeake blames on a faulty gasket on the blowout preventer–occurred as the well was undergoing hydraulic fracture stimulation. Fracking, as it’s known, is the process by which drillers free oil and gas from tight, impermeable rock like shale. They inject water mixed with sand and chemicals down a well at high pressure. This cracks open fractures in the rock that allow hydrocarbons to escape.

Chesapeake is America’s most prolific driller, and fracker, having done 1,400 wells in the past year, and 16,000 since 1989. That makes the company enemy number one for the “fracktivists.” The Bible of the fractivists, a film by Josh Fox called “Gasland” depicts people who claim their water wells have been so polluted by fracking that they can ignite the gas seeping out of their faucets.

Chief Executive Aubrey McClendon‘s position is predictable. “The debate is tiresome, and it’s also sad that so many smart and well-educated people can so fear a process that has such an incredible track record of safety and environmental integrity. Without the use of fracking there would be no new natural gas wells in the U.S.”

More than 90% of new wells drilled today are fracked. Shales and other impermeable rock can’t be developed any other way. The process was invented 60 years ago and has been done a million times. But it’s a new thing to people in shale gas centers like Pennsylvania.

They’re anxious about the chemicals. Stuff like acids to dissolve minerals and create cracks, surfactants to make the fluid more slippery, anti-bacterial agents to prevent bacteria that corrode pipes. How much of this stuff gets injected down each well? About 10,000 gallons. Sounds like a lot until you consider that this volume is less than 1% of the roughly 1 million gallons of water and 1 million pounds of sand used in the average frack.

You can find a lot the same stuff around the house: swimming pool chemicals, glass cleaner, deodorant, ice cream. Doesn’t mean you want to drink it. A couple years ago some cattle died in Louisiana after ingesting chemicals at a drill site; Chesapeake paid the farmer for his cattle.

New York imposed a temporary moratorium on fracking; France banned it altogether; the Environmental Protection Agency has been investigating the practice for years with an eye toward instituting regulations. Above ground the chemicals are already regulated.

As long as it’s done right, fracking is safe. The targeted shale layers are usually between 5,000 and 8,000 feet underground. Aquifers tapped for drinking water and irrigation are never deeper than 1,000 feet. Injected fluid is not going to migrate through a mile of impermeable rock. But it could escape through imperfect joints in sections of well pipe closer to the surface.

To address that, the Pennsylvania Department of Environmental Protection has ordered drillers to use extra layers of pipe at those depths (at an added cost of $650,000 on a $7 million well) to create more protection.

Chesapeake says it has offered to install water filtration systems to 20 homeowners in Pennsylvania with polluted water, some of whom have sued Chesapeake seeking for force the company into arbitration over alleged damages. The company says before drilling a well it now tests all water wells within 4,000 feet. They say they’ve found that half are already polluted to begin with.

Could fracking ever get banned nationwide? Impossible. Nearly all gas drilling would stop, bringing the layoffs of hundreds of thousands. Natural gas supplies would plunge as new wells declined; prices would soar, power plants would shut down. Manufacturers like Dow Chemical, which has been reinvesting in the U.S. to take advantage of cheap gas feedstock, would be hammered. John Surma, chief of U.S. Steel, says he’s taking advantage of cheap U.S. gas by building a $100 million steel plant in Ohio. His energy costs there are $25 per ton of steel versus $60 in Slovakia, which is beholden to pricey Russian gas. Oil and gas drillers hired 17,000 workers in the last quarter.

McClendon is convinced the industry can quell fears. “How many people have been killed by fracking? How many acres of land have been permanently destroyed by fracking? How many waterways have been permanently destroyed?

How much of our air has been destroyed? Zero. Have several dozen families in four counties been inconvenienced? Yes. Is that an embarrassment to me and my industry? Yes. Have we corrected the root causes? Yes.” The fracktivists will be watching.
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  #40  
Old November 3rd, 2011, 09:50 AM
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Chesapeake’s McClendon buys back the maps…
November 3, 2011 at 10:41 am by Michelle Leder

Back in May 2009, we came across something that, even after nearly six years of reading footnotes, managed to surprise us. It was a disclosure buried deep in Chesapeake Energy’s (CPK) proxy for 2009 about the company spending $12.1 million to buy a collection of antique maps from Chairman and CEO Aubrey McClendon and it quickly became one of our favorite footnotes of all time. We first wrote about the disclosure for the NY Times’ DealBook and footnoted readers selected it for the highly coveted (!) prize of worst footnote of 2009.

Indeed, the disclosure about McClendon’s map collection began to take on a life of its own, prompting several shareholder lawsuits (more on that in a minute), showing up in a New Yorker magazine profile of footnoted friend Nell Minow and prompting Chesapeake to issue an amended proxy in an effort to set the record straight about some of the, um, more unusual disclosures in the initial proxy, including the map collection. The amended filing was really just a letter from General Counsel Henry Hood to Daily Oklahoman reporter Randy Ellis. Both the initial disclosure and the amended filing are well worth reading, for sheer entertainment value.

Among the justifications given for the purchase was that the company “believed it was not appropriate to continue to rely on cost-free loans of artwork from Aubrey.” As we footnoted after reading the second filing, it really was hard to read these disclosures with a straight face. The letter also noted that the map collection was really worth more than $8 million more than Chesapeake had paid, at least according to the appraiser who had helped assemble the collection in the first place!


We mention all this back-story because yesterday we learned that Chesapeake had reached a settlement with the investors who first filed suit back in the spring of 2009. The settlement was first reported (subscription required) by Brianna Bailey of The Daily Record and we picked it up in our Twitter feed yesterday afternoon. As Bailey reported and Chesapeake later confirmed, McClendon will pay back the $12.1 million plus interest of 2.28%.

One key part of the settlement appears to be this: “The Company will not reimburse Mr. McClendon for the Recission Payment, whether as part of any future compensation or otherwise.” Insurance also won’t be used to cover the cost. Chesapeake also has to pay $3.75 million to cover the plaintiff’s legal fees (assuming the court approves the payment) and presumably spent millions of its own money over the last 2 1/2 years fighting the lawsuit. A spokesman for Chesapeake declined to provide an estimate of what it had spent. The spokesman for Chesapeake did provide this statement however, which it attributed to Holt:

“We are pleased to have reached this settlement and believe it is fair and conducive to bringing this matter to a positive conclusion. Since the settlement remains subject to final court approval, we will limit further comment. ”

Even with a few more years of SEC scuba-diving under our belts, McClendon’s map collection remains something of a gold-standard when it comes to unusual disclosures. While we’ve come across some other CEO art collections in the filings, we’ve yet to come across something quite as flagrant.

That Chesapeake stock has far underperformed some of its closest competitors, including Anadarko Petroleum (APC), Cabot (COG) and EOG Resources (EOG) since the disclosure is a cold-hard fact. But how much of a role the disclosure and ensuing legal mess and, quite frankly, the environment that led directors to approve such a stupid deal in the first place is one of those — to borrow some words from former Defense Secretary Donald Rumsfeld — great unknown unknowns.

Perhaps the real question is whether other top executives — and their boards — learn from this. Let’s say the whole thing wound up costing around $20 million in cash plus millions more in lost opportunity costs (summoning up that Brandeis economics degree). Is that really enough to prevent this sort of thing from happening again? We’d like to think so, but the pessimist in us says that’s probably not the case.
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