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CHK: Utica Is Worth $13K-17K Per Acre

Company works to move beyond financial troubles

June 2, 2012
By CASEY JUNKINS Staff Writer , The Intelligencer / Wheeling News-Register

WHEELING - Chesapeake Energy believes every acre of its oil and liquids-rich Utica Shale play is worth $13,000 to $17,000, amounts that are significantly greater than most drillers are paying mineral owners to lease local land.

Focusing on developing this acreage and attracting new investors, Oklahoma City-based Chesapeake is trying to move beyond the financial troubles caused by Chairman and Chief Executive Officer Aubrey McClendon's personal dealings in the company's operations throughout Northern West Virginia.

Chesapeake's stock price closed at $16.90 Thursday on the New York Stock Exchange, up from $14.65 about two weeks ago.

Article Photos

Photo by Casey Junkins
The Dominion Resources Natrium processing plant, slated to be up and running by December, continues taking shape along the Ohio River in Marshall County. Chesapeake Energy will supply the Dominion plant with liquids-rich Marcellus and Utica Shale gas.

The company plans to sell more than 500,000 acres of leases in Colorado and Wyoming, while reducing director compensation to help eliminate debt - and pay back the $4 billion loan the company received from Goldman Sachs.

Even by taking these steps, leaders of the company - which leads the Upper Ohio Valley's Marcellus and Utica shale boom - believe they will still have about $9.5 billion worth of debt on the books by the end of this year.

Via firms such as Jamestown Resources and Larchmont Resources, McClendon took a 2.5 percent stake in Chesapeake's Ohio, Marshall and Brooke County operations. Chesapeake is a publicly owned company traded on the NYSE. Conversely, Jamestown and Larchmont are privately held by McClendon. Jamestown and Larchmont gained interest in thousands of acres of Chesapeake leases signed by local mineral owners.

McClendon has since agreed to end this practice by June 30, 2014 - and to eventually relinquish his chairmanship of the company.

In its continuing effort to find new investors to help fund operations, Chesapeake prepares a periodic "Investor Presentation."

In the latest document, the company identifies the "oil and wet gas" portion of its Utica Shale leaseholdings to be worth $13,000-$17,000 per acre.

Chesapeake recently noted that wet gas wells - those producing ethane, butane, propane, pentane and other liquid properties, as well as the dry methane gas - can be worth about three times as much as the wells that yield only the dry methane gas.

However, the lease (bonus) payments Chesapeake and other companies are paying are only a fraction of this amount, with some property owners locked into $5 per acre leases they may have signed a few years ago.

"To date in Ohio, we have invested more than $2 billion in acquiring leasehold. After the acreage is leased, there is significant expense to efficiently and economically drill, produce, transport and market the minerals," said Pete Kenworthy, manager of media relations for Chesapeake.

"It is also important to note that land owners will receive royalty payments from production of the minerals in addition to the bonus money that is paid when the lease is signed," he added. "When entering into a new area of operation, the financial risk rests solely with the operator, but is not recognized merely in the cost of bonus payments to land owners."

The investor presentation shows that Chesapeake classifies its West Virginia acreage in the same category as its Ohio acreage under the Utica Shale banner.

It shows the company having significant holdings in Jefferson, Harrison, Columbiana and Carroll counties in Ohio, along with some holdings scattered throughout Belmont County.

In West Virginia, Marshall, Ohio, Wetzel and Brooke counties all have large amounts of acreage leased to Chesapeake, while the company has some holdings in Hancock and Tyler counties.

According the investor presentation, Chesapeake places a value of $30,000 to $50,000 on each acre of land in its Eagle Ford Shale play, based in Texas.

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