Chesapeake Energy's Eagle Ford assets will receive 30% of the company's capital budget in 2012 and 40% in 2013. The company is shifting capital from natural gas developments to oil in areas like the Eagle Ford and the Utica. Low natural gas prices are driving the shift to oil for many operators. Natural gas focused companies like Chesapeake are literally evolving before our eyes. The company grew crude oil production in the Eagle Ford from 25,000 b/d at the end of the year to over 55,000 b/d at the end of April. Bringing 30,000 b/d of crude onto the market in just a few short months is no small feat.
2012 and 2013 are proving to be very important years for the company's Eagle Ford assets. CHK is building an oil production base that will support development for years to come.
The company also plans on raising capital in the next few months by selling a volumetric production payment (VPP) related to the Eagle Ford. A VPP allows Chesapeake to recover some of its capital investment by selling future production today. VPP's usually have a prescribed time period and a prescribed volume. When those two obligations are met, existing production will revert back to Chesapeake.
Also, expect the company to slow down in terms of drilling activity in the next few months. Current plans only call for an average of 30 rigs running in 2012. As of last week, the company had 35 active, so they'll need to drop 7-10 rigs in the last half of the year to meet their current guidance.
Read additional quarterly commentary at our Chesapeake Eagle Ford page.