Chesapeake Energy 2011 Annual Report Download - page 22

20 | Investor Q&A
Steve Dixon
Executive Vice President –
Operations and Geosciences
and Chief Operating Officer
Je Mobley
Senior Vice President –
Investor Relations
and Research
INVESTOR
Q&A
What is driving CHK’s substantial liquids production growth?
In response to strong oil and NGL prices as well as ongoing operational and techno-
logical success, we have greatly accelerated drilling in our liquids-rich plays. In 2011, our
liquids-rich plays accounted for approximately 50% of our drilling and completion expen-
ditures, and in 2012, we project that spending on these plays will exceed 85%. During 2011,
we increased our average operated rig count on liquids-rich plays by 55 rigs, or 150%, to
92, and we plan to increase this level by 41 rigs, or 45%, to 133 rigs in 2012.
Our production from liquids increased by 36,000 bbls per day, or 72%, in 2011 to 87,000
bbls per day, and we anticipate a further increase of more than 63,000 bbls per day, or
70%, in 2012 to 150,000 bbls per day (excluding the eect of our projected asset mon-
etization transactions in the Permian Basin and Mississippi Lime play). We are well on the
way to achieving our goal of increasing average daily liquids production to 250,000 bbls
per day by 2015, a level at which we will likely be a Top 5 U.S. liquids producer.
One of our largest increases in liquids production for 2011 and 2012 has been from
the Eagle Ford Shale play in South Texas. We have drilled approximately 470 wells to
date, of which only 280 wells are producing (mainly because of infrastructure bottlenecks), and almost
half of the producing wells have had peak production rates in excess of 500 bbls per day. In 2011, we
made substantial progress in building the needed infrastructure in the Eagle Ford by adding 350 miles of
pipeline as well as regional rail-loading terminals. As a result, we expect production from the Eagle Ford
to account for just over 25% of total liquids production by year-end 2012.
Our production from the Mississippi Lime carbonate play in northern Oklahoma and southern Kansas
is also ramping up nicely, growing by approximately 3,500 bbls per day, or 140%, in 2011, and we antici-
pate continued success from this play with growth of more than 14,000 bbls per day, or 230%, projected
for 2012. We also continue to experience excellent results in the Anadarko Basin from our Granite Wash,
Cleveland and Tonkawa tight sand plays and from our liquids-rich Niobrara Shale play in the Powder River
Basin. Lastly, we look forward to ramping up drilling activity and production from our recent discovery in
the Utica Shale play in eastern Ohio where we have very high expectations.
How has CHK been able to discover the most new U.S. unconventional
resource plays?
The skill set required for new play identification and subsequent aggressive leasing
is not easily obtained. Over the years, Chesapeake has made a concerted eort to
invest in and develop the necessary skills and resources to become the premier discoverer
and developer of U.S. unconventional resource plays. Our track record for finding uncon-
ventional resource plays is unmatched in the industry, leading the way in discovering the
Haynesville and Bossier shales in Louisiana, the Colony Granite Wash in western Okla-
homa, the Tonkawa tight sand play in western Oklahoma, the Mississippi Lime carbonate
play in northern Oklahoma and southern Kansas and most recently the Utica Shale in
eastern Ohio.
Our investment and commitment to people and technology have paid tremendous
dividends. Since 2000, the company has grown its geoscience, engineering and opera-
tional sta from 200 to more than 2,550 at year-end 2011. The company benefits tremen-
dously from the industry’s only in-house shale core Reservoir Technology Center which
uses proprietary testing techniques on rock core samples taken thousands of feet beneath the surface from
various unconventional plays. Performing complex analysis in-house rather than relying on third-party pro-
viders gives Chesapeake greater confidentiality and consistency of data. It also provides a massive data
inventory on hundreds of plays and a critical time advantage over peers in evaluating new plays — all key
first mover advantages.