Chesapeake's Eagle Ford News Good For Surrounding Companies

| About: Chesapeake Energy (CHK)
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Chesapeake (CHK) has delivered impressive growth in the Eagle Ford Shale in the second quarter. Net production for Q2 2012 averaged 36,300 Boepd. This represents a 58% sequential increase over Q1 2012 and a 615% increase over Q2 2011. The company brought 121 wells online in Q2 and 110 had IP's of over 500 Boepd and 37 had IP's of over 1,000 Boepd. Chesapeake announced some of its best wells to date in the Eagle Ford including the Gates 010-CHK-B TR1-D6H in Webb County with an IP rate of 2,070 Boepd and the Holubar Dim C 2H in Dimmit County with an IP rate of 1,900 Boepd including a very impressive 1,730 barrels of oil. Furthermore, Chesapeake announced continued success with improved drilling times and cost reductions of 15% per well in the Eagle Ford. Chesapeake now believes it can achieve the same production guidance with only 25 rigs versus the original plan of 28 rigs. This improvement in cost and efficiency in the Eagle Ford has been echoed by Marathon Oil (MRO) who claims they can reduce their number of rigs from 20 to 18 and still meet their production targets.

Chesapeake has 475,000 net acres in the Eagle Ford primarily located in six counties; Dimmit, Zavala, Webb, Frio, LaSalle, and McMullen. Most of Chesapeake's acreage is in the oil play. The success achieved by Chesapeake is a good sign for their neighboring oil and gas companies in those six counties. The best oil results so far for Chesapeake appear to be coming out of Dimmit County. Anadarko Petroleum (APC) has 200,000 net acres in the Eagle Ford. Most of their acreage is in the gas condensate window in Southern Dimmit and Webb Counties. Newfield Exploration (NFX) has 230,000 net acres primarily in the oil window in Maverick, Dimmit, and Zavala counties. Newfield has had very strong results with wells drilled in the middle of Dimmit and one well averaged 700 Boepd over the first 90 days.

Several smallcap companies also have significant acreage positions near Chesapeake. Matador Resources (MTDR) has 30,100 net acres in the Eagle Ford including acreage in Dimmit, Zavala, LaSalle, and Frio counties. Goodrich Petroleum (GDP) has 40,000 net acres in LaSalle and Frio counties neighboring Chesapeake. Crimson Exploration (CXPO) has 8,200 net acres primarily in Dimmit, Zavala, and Karnes counties. U.S. Energy (USEG) is a working interest partner with Crimson and has 4,100 net acres in Dimmit and Zavala.

One last positive from Chesapeake concerning the western portion of the Eagle Ford is new pipelines should increase realized prices of $5 per barrel relative to West Texas Intermediate. The success Chesapeake is having in the Eagle Ford is unlocking significant value for not only themselves, but all of their neighbors. Chesapeake estimates their Eagle Ford acreage is worth $30,000 to $50,000 per acre.


Disclosure: I am long USEG.