With billions in deals announced and new M&A rumors bouncing around seemingly day-to-day, Chesapeake Energy Corp. isn’t getting caught up in the furor after a busy year of selling off assets to get gassier.
In 2021 after emerging from bankruptcy, Chesapeake set about crafting a dual-basin portfolio concentrated in the Marcellus and Haynesville shales. The strategy included shedding assets in most other basins and, notably, exiting the Eagle Ford Shale earlier this year in three separate deals valued at about $3.5 billion.
“As I kind of walk through the choices that we’ve made around our portfolio, we’ve been very active in the space of M&A. We’ve worked really hard to reposition the company’s portfolio and we’ve done that with a level of conviction to the point that we feel really good about where we’re at,” Josh Viets, Chesapeake executive vice president and COO said during Hart Energy’s DUG Appalachia Conference on Nov. 30 in Pittsburgh.
As a result, Chesapeake doesn’t feel any pressure to go out and acquire more assets, he said. And any deal would have to compete with the company’s top-tier inventory.
“What we’ve done so far has really strengthened the company and it creates a really high bar for us to go out and do anything else,” he said.
To be considered, he said, any potential acquisition would have to make the company better, not just bigger.
“We’re pretty happy to sit here and develop the assets that we own today,” Viets said.
Shaping the portfolio
Post-bankruptcy, Chesapeake opted to sell off its “incredibly complex” assets in the Powder River Basin—as well as its Eagle Ford holdings, where one of its last pre-bankruptcy acquisitions was the 2019 purchase of oil producer WildHorse Resource Development Corp. for $4 billion.
In the aftermath of corporate reorganization, choosing where to spend capex became an increasingly thorny decision for Chesapeake.
“As you start to work down an inventory curve and you have remaining locations that you’re not quite sure you want to invest or invest as much maybe as what the asset needs, you’re left with the decision to either continue to invest and allocate capital or you stop investing when the asset starts to decline and that’s never a good choice,” he said.
Where Chesapeake definitely wanted to invest were two “distinctly different” but complementary basins—the Marcellus and Haynesville.
“It's one of the simplest assets that I think a company could have, and I know some of our technical people will say that’s not always true, but everything’s relative,” Viets said of the Marcellus. “It has a relatively low-cost structure, it has relatively low decline rates. It has a very forgiving reservoir against some of the best shale rock that you’ll find here in North America.”
But for all the upside, the Appalachia Basin is not without its challenges, most notably infrastructure constraints. Infrastructure is inherently challenging to build, he said, particularly when it must cross multiple state lines.
“That’s one of the reasons we’re so bullish on our Louisiana position, because everything stays within the state,” he said of Chesapeake’s Haynesville holdings.
However, Viets, who has worked in many of the unconventional basins across the U.S. and Canada, said the Haynesville features a far different geology than the easy characteristics of the Marcellus.
The Haynesville “is probably the most complicated unconventional shale gas field that is being developed across North America. It’s deep, it’s very high pressure. It’s not uncommon to have wellhead pressures over 8,000 psi. You’re trying to drill in the reservoir with temperatures that are well above 370 degrees Fahrenheit. You have CO2, you have H2S that you’re contending with on the production side. All of that translates into its higher cost with higher breakevens,” he said.
It may be complicated, but it’s well positioned to reach of LNG infrastructure on the U.S. Gulf Coast, he said. That means it’s possible not just to grow the asset, but also to receive premium pricing for the production, he said.
Data, tech and techniques
While Chesapeake has operated in most of the U.S. shale basins, it has been in the Marcellus and Haynesville “from the very beginning,” Viets said. And the company has “well over a thousand wells in both basins.”
Chesapeake has accumulated large amounts of data that can help inform daily operations, especially through analytics and machine learning, he said.
“We’ve been able to take all of our historical drilling parameters within our Haynesville Marcellus assets and allow our operations teams that are helping manage our drilling programs to forecast and provide an estimate of what a rate of penetration [ROP] should be for the next … hundred feet of the lateral that we’re going to be drilling,” he said.
That’s useful because it helps establish a target for ROP, but it also provides guidance on setting parameters such as weight on bit or differential pressure that are needed to achieve the desired ROP.
And such techniques and technology are paying off.
“Our footage per day on our drilling operations this year have been improved by 40% since late last year, which is absolutely phenomenal. Eight of the 10 fastest wells that we’ve ever drilled in the Marcellus have been drilled this year. As we compare our well costs to early in 2023, our well costs are down by 20%,” Viets said.
And laterals are getting longer, he said, noting that within the past five years, Chesapeake has increased Marcellus lateral lengths by 70%.
““We’ve also implemented a pretty creative wellbore trajectory design, which we call a hybrid, where [we’re] … able to maximize the lateral length,” he said.