In recent days, we've met a few new unconventional oil and gas resource plays. While none of them appears to pack the heavyweight punch of a Haynesville or a Marcellus, they do reinforce the overall direction of our domestic energy industry.
That direction, Fools, is horizontal.
During its marathon two-day analyst and investor extravaganza, Chesapeake Energy (NYSE:CHK) broke down its four major shale plays in great detail. The company also pulled back the curtain a bit on two emerging resource plays.
One is the West Edmond Hunton Lime in Oklahoma, an oily play right in Chesapeake's backyard. Petrohawk Energy (NYSE:HK) is also active here, and has released some decent preliminary results. When I say oily, I mean that, as with Continental Resources' (NYSE:CLR) Bakken shale play, liquid hydrocarbons are lurking in this particular reservoir rock, rather than more commonly found natural gas. Chesapeake estimates a pre-tax internal rate of return for its West Edmond wells of 200% or better, which is fantastic. Unfortunately, the company only sees itself drilling about 60 wells here over the next four years.
Chesapeake's other new play, the Cleveland Sand, also has a strong oil component. Neither play appears extensive enough to move the needle too far for a big boy like Chesapeake, but I would be very happy to see the firm get some incremental oil exposure in its production mix. EOG Resources (NYSE:EOG) is certainly benefiting from such a shift with its Barnett oil play.
I mentioned Petrohawk earlier. This company's got a new play down Texas way, called the Eagle Ford Shale. We'll get slightly technical for a second here, so hold on to your ten-gallon hat.
On its special conference call, Petrohawk compared the Eagle Ford to the Haynesville in several respects, though the Haynesville has a higher pressure gradient. As a result, the Eagle Ford will likely contain less gas in place per section. The upshot is that drilling costs ought to be lower, given that you need special materials to drill into overpressured rock. Folks like Halliburton (NYSE:HAL) can of course handle that kind of thing in the Haynesville, but it's an extra hassle and expense.
Once you factor in Petrohawk's considerably lower leasehold acquisition costs, plus the existence of mature infrastructure in the area, I think you've got a recipe for what ought to be strong financial results.
Related Foolishness:
- All aboard the Fayetteville Express.
- Time to nuzzle up to this horizontal drilling ace?
- EOG's taken its horizontal habit overseas.
