By Mikaila Adams
Oil & Gas Financial Journal

Today, oil and natural gas company Chesapeake Energy (NYSE: CHK) disclosed peak rates from four Utica Shale wells in eastern Ohio and western Pennsylvania, three in the wet gas window and one in the dry gas window. 

In what Jefferies & Co. Inc. analysts called “encouraging results” that “bode well for the future of the play,” the 12 horizontal wells that Chesapeake has drilled thus far in the Utica Shale discovery phase averaged peak rates of roughly 1,800 boe/d.

In a prepared statement, Chesapeake CEO Aubrey K. McClendon commented, "We are pleased to announce very strong initial drilling results from the wet gas and dry gas phases of our Utica Shale discovery.” 

Overall, noted Jefferies in its September 28 note to investors, natural gas liquids (NGL) yield seems to be 2.5x to 5.0x that of southwest Marcellus Shale wells. 

Wet gas window
Within the wet gas window of the play, the Buell 10-11-5 8H in Harrison County held a peak rate of 3,010 boe/d (47% NGLs and oil). Citing the initial 1,090 boe/d rate that Chesapeake reported to the Ohio Department of Natural Resources (OH DNR), Jefferies’ analysts said the company may have initially been holding back production significantly with a smaller choke. 

The post-processing number includes some volume expansion versus the wellhead figure reported to the OH DNR, noted Jefferies. “Assuming the same condensate split as given in the initial results, NGL yield appears to be about 120 bbls/mmcf, or 2.5x the roughly 45bbls/mmcf observed in southwest Marcellus,” said the analysts. 

Wet gas results from two wells in Carroll County, north of Harrison County, are also encouraging, with a high liquids content. The Mangun 22-15-5 8H and the Neider 10-14-5 3H achieved peak rates of 1,532 boe/d (66% liquids) and 1,613 boe/d (61% liquids), respectively. “Assuming a 5% condensate yield (using the Buell initial results as a proxy), NGL yield appears to be 210-270 bbls/mmcf, or about 5x that of southwest Marcellus. Separately, it is interesting to note that the Neider well had only a 4,000-ft lateral, while the Buell and the Mangun had lateral lengths upwards of 6,000 feet.” 

Dry gas window
The Thompson 3H dry gas window well in Beaver County, Pennsylvania showed a “solid” result of 6.4 mmcf/d, but the results were “not as exciting” as the wet gas window results, noted Jefferies. 

Future plans 
While the Utica Shale presents both challenges and opportunities, Oklahoma City-based Chesapeake is poised to benefit from its Utica acreage should the play live up to its hype as the next "it" play, comparable to the Eagle Ford Shale in South Texas. 

Chesapeake holds roughly 1.25 million net leasehold acres in the play and is currently in the early stages of evaluating the oil phase of the play. Eight additional drilled horizontal wells are completing or waiting on completion. 

Going forward, Chesapeake plans to increase its operated rig count from five to 10 by year-end 2011, up from the eight rig target mentioned in the company’s 2Q11 conference call that also included the company's $15 to $20 billion valuation on its 1.25 million acres in the play. The year-end 2012 and year-end 2014 targets remain at 20 and 40 rigs, respectively. 

And the cost for developmental drilling and completion? Chesapeake noted costs of approximately $5 to $6 million per well. While no specific number was given, Jefferies analysts expect costs to be “significantly higher.”