Chesapeake Energy 2011 Annual Report Download - page 23

2011 Annual Report | 21
Doug Jacobson
Executive Vice President –
Acquisitions and Divestitures
Tom Price, Jr.
Senior Vice President –
Corporate Development
and Government Relations
What advantages does CHK have as a result of its vertical integration strategy?
Chesapeake’s vertical integration strategy into oilfield services (including drilling rigs,
oilfield rentals, hydraulic fracturing, rig moving logistic services, directional tools, mud-
logging and water and crude oil hauling services, among others) and midstream services
(including gathering, compression, processing and marketing) helps alleviate shortages of
services and avoid bottlenecks that could inhibit our rapid development of new plays. As
the most active driller of new wells in the nation and with the potential to drill up to 125,000
future wells, our success is predicated on having access to critical services to drill, complete,
produce, gather and market our production.
By owning the companies that provide these services, we are able to quickly and e-
ciently align our service operations and assets to match our needs and secure cost savings and ecient
capital deployment. Our oilfield service and midstream businesses also enable us to capture profits that
otherwise would be paid to third-party service providers. Executing our drilling program on our timeline,
according to our specifications and quality standards helps us drill wells better, faster, cheaper and, impor-
tantly, safer, as we operate America’s largest drilling program.
Why has CHK become the “partner of choice” for JV transactions?
During the past four years, Chesapeake has led the industry in creating and completing
innovative joint venture (JV) partnerships in U.S. unconventional resource plays, with five
world-class energy companies as our partners (Plains, BP, Statoil, Total, CNOOC). In total, we
have completed seven transactions and sold 1.5 million net acres of leasehold for total consid-
eration of more than $16 billion, representing nearly half of the total value of JV transactions
completed in the U.S. since 2008. While certainly value-creating transactions for Chesapeake,
these JVs have proven to be exceptional investment opportunities for our partners as well.
The company has become the partner of choice for unconventional resource play de-
velopment due to its unique abilities to combine premier new play identification skills with
an unrivaled leasehold acquisition program, the industry’s largest and most active drill-
ing program, cutting-edge drilling, completion and production technology, leading health,
safety and environmental practices along with operations that are vertically integrated into
oilfield service and midstream operations. This unique combination of capabilities allows
Chesapeake to identify and secure premier, low-risk unconventional assets which we can
develop more eciently than any other company in the industry. This translates into an unparalleled op-
portunity for our partners to participate in a predictable, multi-decade drilling program with some of the
highest risk-adjusted returns in the industry.
How is CHK benefiting from converting from gasoline and diesel to natural gas?
Chesapeake is accelerating the conversion of the vast majority of its drilling rigs and
truck fleet from gasoline and diesel to either compressed natural gas (CNG) or liq-
uefied natural gas (LNG). By the end of 2012, we expect to have converted 1,500 of our
light-duty fleet vehicles and 400 of our heavy-duty fleet vehicles to run on either CNG or
LNG. We also plan to convert 40 of our Nomac land drilling rigs by year-end 2012 to run
on a blend of LNG and diesel. These conversions will not only lower our environmental
footprint, they will also save the company an estimated $250 million annually once fully
implemented. However, the benefits of converting our operations to natural gas go far
beyond cost savings. Our conversion eorts help catalyze the adoption of natural gas by
other fuel users, and our scale helps underpin capital investments in infrastructure and new
equipment by other early adopters and market leaders. In turn, we are creating incremen-
tal demand for the key product we produce — natural gas.
We are firm believers in the merits of natural gas and have become outspoken advocates
about its greater use as a transportation fuel in the U.S. We are leading the way in demon-
strating how to convert the nation’s transportation system to natural gas, helping build infrastructure and in-
vesting in new technologies and equipment to make it much easier, more aordable and practical for Ameri-
cans to shift to clean, aordable and American natural gas rather than expensive and dangerous OPEC oil.
As a consequence of our actions and those of others, the marketplace is increasingly moving toward
CNG and LNG. Our industry-leading natural gas demand enhancement team is working every day with some
of the most respected companies in the nation, such as Ford, General Motors, Navistar, 3M, Clean Energy,
Whirlpool and General Electric, to find achievable and scalable solutions sooner rather than later to bring
the tremendous benefits of natural gas to ever-increasing numbers of American businesses and consumers.
Jerry Winchester
Senior Vice President –
Oilfield Services and
Chief Executive Officer of
Chesapeake Oilfield Services