Back in March of 2008, Chesapeake Energy
In Chesapeake's second-quarter 2009 operational update, the company identified its Colony Granite Wash and Texas Panhandle Granite Wash plays as "the two highest rate-of-return plays in the company." In the third-quarter report, the company estimated the Colony's internal rate of return at 141%, based on selling the natural gas at $7 and the oil at $70. Chesapeake also spoke excitedly about its wash plays at the annual investor day, and began talking about its "Big 4 plus 1," putting its Greater Wash plays on the same pedestal as the treasured shale plays that European giants BP
Despite all this promotion by Chesapeake, the buzz surrounding these plays remained pretty minimal. After almost two years, it seems that wash plays are finally beginning to elicit major enthusiasm.
It's hard not to be excited about these wells, based on Forest Oil's
The economics of the wash plays do not lie solely in their productivity. These wells, drilled horizontally through tight rock, have a strong liquids component, which makes them more valuable than a straight gas well. By liquids, I mean crude oil, condensate, and natural gas liquids (NGLs) like butane -- all of which are tied more closely to oil prices than natural gas prices. Some wash wells, like Newfield Exploration's
As noted in my Chesapeake analyst day roundup, that company's the dominant leaseholder in the granite wash. Cimarex Energy
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