Chesapeake’s Big Opportunity in the Utica Shale

Though Texas' Eagle Ford shale will be the primary driver of Chesapeake Energy's (NYSE: CHK  ) oil production growth during the next few years, the company's acreage in Ohio's Utica shale will be a crucial contributor to its natural gas liquids (NGLs) production growth.

Chesapeake in the Utica
After discovering the play back in 2010, Chesapeake was one of the first companies to recognize its potential. Today, it is the most active driller and largest leasehold owner in the Utica, with approximately 1 million net acres under its belt.

According to recent data from Ohio's Department of Natural Resources, the comapny produced 372,212 barrels of oil, and 10.1 million mcf of natural gas from the play last year, and lay claim to five of the top 10 producing Utica oil wells in the third quarter. Not surprisingly, Chesapeake's third-quarter net Utica production surged 91% year over year to average approximately 164 million cubic feet of natural gas equivalent per day.

While that's a truly impressive rate of growth by any measure, it could have been even higher. One of the main impediments to the company's production growth in the Utica has been infrastructure constraints. For instance, the company reported that it still had a total of 208 wells that were in various stages of completion as of the end of the third quarter, with many awaiting a pipeline connection.

Infrastructure improvements in the Utica
But with Utica gas processing and pipeline takeaway capacity expected to expand significantly this year, this should change. Already, gas processing capacity from the Kensington plant -- a joint venture between Access Midstream Partners (NYSE: ACMP  ) , EV Energy Partners (NASDAQ: EVEP  ) and M3 -- has doubled with the addition of a second train in December. Access Midstream and EV Energy are also in the process of laying gathering pipelines to deliver Chesapeake's production to the plant.

The next big project that will improve Chesapeake's takeaway capacity from the Utica will be Enterprise Products Partners' (NYSE: EPD  ) Appalachia-to-Texas Express, or ATEX, pipeline, a 1,230-mile line that will transport natural gas liquids (NGL) from the Utica to the Texas Gulf Coast. The project should come online any time now, and will allow Chesapeake to increase its shipments of ethane to the Gulf Coast.

ATEX will have an initial capacity of 125,000 barrels per day that could be expanded to as much as 260,000 barrels per day depending on demand. Chesapeake, which has contracted a whopping 75,000 barrels per day of capacity on the line, will be one of the biggest beneficiaries of its completion. Range Resources and Antero Resources will also benefit, because each of them have also contracted 20,000 barrels per day of capacity on the line.

As a result of these projects, Chesapeake expects to double its gross processing capacity in the Utica from 400 million cubic feet per day as of the end of 2013, to 800 million cubic feet per day by the end of this year. This will allow the company to connect many of those backlogged wells to sales, and boost its production.

What's next for Chesapeake?
Despite planning to spend about 20% less this year than it did last year, Chesapeake expects to deliver 8%-10% year-over-year production growth in 2014, consisting of 8%-12% oil production growth, 44%-49% natural gas liquids growth, and 4%-6% natural gas production growth.

In the Utica, the company will continue to target mainly oil and natural gas liquids opportunities, as opposed to dry gas. At its recent 2014 outlook and capital program conference call, chief financial officer Nick Dell'Osso said the company expects to recover significantly more ethane from the Utica this year than it did in 2013.

The bottom line is that, while Chesapeake's Eagle Ford operations will continue to be the key driver of its oil production growth, the Utica will be crucial in boosting the company's production of natural gas liquids. Investors should check out Chesapeake's update on its Utica shale operations, which it plans to provide at an upcoming investor-day program on May 16.

What is the best stock of 2014? 
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2835845, ~/Articles/ArticleHandler.aspx, 8/27/2014 1:24:32 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 17,117.68 10.98 0.06%
S&P 500 2,000.04 0.02 0.00%
NASD 4,570.35 -0.29 -0.01%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/27/2014 1:08 PM
ACMP $63.36 Up +0.35 +0.56%
Access Midstream P… CAPS Rating: *****
CHK $26.54 Up +0.08 +0.30%
Chesapeake Energy CAPS Rating: ****
EPD $40.05 Up +0.11 +0.28%
Enterprise Product… CAPS Rating: *****
EVEP $41.12 Up +0.63 +1.55%
EV Energy Partners… CAPS Rating: ***

Advertisement