Chesapeake Energy 2009 Annual Report Download - page 7

LETTER TO SHAREHOLDERS 5
significance of the play until early 2004. We then
made our first two property acquisitions in Johnson
County and set our sights on what we called the
“doughnut hole” — Tarrant County, the home of Fort
Worth and more than 60 other municipalities.
Most in the industry knew Tarrant County lay
above the best Barnett rock in the entire play.
What was unclear was how to develop it beneath
a metropolitan area of almost two million people.
After analyzing the challenges and opportuni-
ties of urban and suburban drilling, we concluded
that while most of our competitors would not want
to deal with these complexities, Chesapeake’s
operational and land acquisition skills would be
especially well suited for successful urban develop-
ment in the Barnett.
Consequently, in 2005 we began leasing in earnest
in Tarrant County, and today we own approximately
200,000 leases, on which we estimate we could drill
up to 2,400 future net wells in addition to our 1,100 net
wells currently producing.
Our most exciting development in the Barnett
Shale during 2009 was the signing of our fourth natu-
ral gas shale joint venture agreement.
This agreement closed in January 2010
and involved Chesapeake selling 25% of
its assets in the Barnett to Paris-based
Total, S.A., the world’s fifth-largest
oil company. Total paid $2.25 bil-
lion in cash and drilling carries for its
25% stake in the Barnett and we are
extremely proud to welcome Total as
one of our four highly valued joint ven-
ture partners.
the implementation of advanced horizontal drilling
and fracture stimulation technologies). To us, it was
simply a very logical way to combine a new technol-
ogy with our land acquisition skills to crack the code
for economically developing large scale projects that
could be company-makers.
Ironically, that is precisely what Chesapeake does
today — uses its cutting-edge technological capa-
bilities and industry-leading land acquisition skills
to develop new unconventional reservoirs that have
recently become some of the largest, most active and
most highly valued natural gas development projects
in the world.
While I am proud of our humble beginnings, I am
also proud that during its 20-year existence, Chesa-
peake has built an unparalleled asset portfolio, an
industry-leading technological position and a deep
sense of environmental stewardship to become the
nation’s second-largest natural gas producer, most
active driller of new wells and most vocal proponent
of natural gas as the best way to fuel America’s clean
energy future.
OUR POWERFUL ASSETS
What will drive Chesapeake’s strong growth in the
future? It will be our industry-leading position in the
“Big 6” major natural gas shale plays in the U.S. — the
Barnett, Fayetteville, Haynesville, Marcellus, Bossier
and Eagle Ford shales — plus our emerging unconven-
tional oil plays. The Big 6 shale plays form the founda-
tion of the American natural gas shale revolution and
they will create substantial value for Chesapeake’s
shareholders for decades to come. And because those
key shale plays are dominated by only 15 or so public
companies, we believe this group of shale pioneers
will emerge as the industry’s biggest winners
in the years ahead. Chesapeake’s Top 2 position
in five of the Big 6 shale plays (with no other
company having more than one Top 2 position)
should ensure that Chesapeake will emerge as
the biggest winner of all from the Big 6 shale
land rush.
BARNETT SHALE
Discovered in the 1990s, the Barnett is the
granddaddy of all shale plays. Chesapeake
acquired its first assets in the Barnett in 2001,
but did not fully appreciate the potential
Hard work, high-tech drilling
rigs and gas-laden shale pro-
vide a formula for success.
Employees of Nomac Drilling,
a Chesapeake subsidiary,
operate the largest rig fleet in
the exploration and produc-
tion industry as they drill for
natural gas in America’s Big 6
shale plays.