Chesapeake - Utica JV - Eagle Ford Drilling at a High

Chesapeake Energy continued its string of successful joint-ventures (JV) following leasing that has added more than 5 million acres in shale plays over the past few years. In all, the company has spent $2,200 per acre and gone on to sell a portion of that acreage for almost $11,000 per acre. Chesapeake has recouped its investment in all of those plays by selling no more than a 33% interest in each shale play. In the latest JV, CHK is getting $2.14 billion or $15,000 per acre for a 25% interest in 650,000 net acres in the wet gas window of the Utica Shale in Ohio. I assume this is the area where CHK references "superior economics". It will be interesting to see what happens in the dry gas and oily windows.

Chesapeake's Eagle Ford drilling program has ramped up to 29 rigs running across the play. 29 rigs leads the way in South Texas and those numbers are expected to stay high as CNOOC's cost carry continues to help fund development.

This new JV would make our seventh. We started with the Haynesville in July of 2008, and in the 3 years since then, we have brought in partners on the Fayetteville, Marcellus, Barnett, Eagle Ford, Niobrara and now into 1 phase of the Utica play. In these seven JV areas, the company initially acquired approximately 5.1 million net leasehold acres at a cost of $11.1 billion. That's around $2,200 per net acre overall on average. We then sold 1.5 million of those acres for total consideration of $16.4 billion in cash and carries, meaning we recovered 150% of our total leasehold costs in all the plays combined, while leaving ourselves with 3.6 million net acres in 7 of the nation's very best plays, at a negative leasehold cost of $5.3 billion. That's about a negative $1,500 per net acre. I really don't think the magnitude or significance of what we have accomplished by owning 3.6 million net acres at a profit of $1,500 per net acre has been fully appreciated. It is quite simply unprecedented in our industry.

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