Chesapeake Oil Well Is Biggest Gusher in Company History

By Joe Carroll - Jun 2, 2012 3:16 AM GMT+0700

Chesapeake Energy Corp. (CHK) said it drilled the largest oil gusher in the company’s 23-year history at a “significant” discovery in the Anadarko Basin of Texas and Oklahoma.

The Thurman Horn 406H well in the Hogshooter formation produced 5,400 barrels of crude a day during its first eight days of operation, Chesapeake said today in a statement. The output was more than twice that of some of the best performing wells in the Eagle Ford shale of south Texas, which Chesapeake counts as its most valuable holding, said Michael Kelly, an analyst at Global Hunter Securities LLC in Houston.

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Drilling operations for Chesapeake Energy Corp. Photographer: Daniel Acker/Bloomberg

“It’s pretty massive,” Kelly said in a telephone interview. “In the Eagle Ford or the Bakken shale, you’d be ecstatic if you got initial production anywhere close to 2,000 barrels a day, so this is really remarkable.”

The discovery will accelerate the second-largest U.S. natural-gas supplier’s shift to more profitable crude production, Chief Executive Officer Aubrey McClendon said in the statement. Chesapeake shares have dropped 28 percent this year as gas prices hit a 10-year low and probes began of McClendon’s personal finances. Gas comprises more than 80 percent of the Oklahoma City-based company’s output.

Chesapeake is seeking to sell $20.5 billion in assets by the end of 2013 to fill a cash-flow shortfall. The Hogshooter wells aren’t among the assets for sale, Jim Gipson, a Chesapeake spokesman, said today in a separate e-mailed statement.

Hogshooter Drilling

The shares fell 7.8 percent to $15.58 at the close in New York as natural-gas futures dropped to a four-week low, capping the largest weekly decline since January.

The Thurman Horn 406H well, which reaches a depth of 10,000 feet (3,000 meters), also pumped 4.6 million cubic feet of gas and 1,200 barrels of natural gas liquids daily.

“It’s the best oil well in the history of the company,” Gipson said.

Apache Corp. (APA) drilled two wells in the Hogshooter formation in 2010 that produced more than 2,000 barrels of oil a day. The wells were 15 miles (24 kilometers) apart, indicating there might be “meaningful potential” across a wide area, the company said at the time.

Chesapeake has 65 more Hogshooter sites identified for drilling in the next few years. Rig costs and other drilling expenses are already factored into the capital budget, so no increase in total spending will be required, the company said.

Variable Results

The next step for Chesapeake is to prove it can achieve similarly high rates of production at other sites in the formation, said Manuj Nikhanj, head of energy research at Investment Technology Group Inc. (ITG) in Calgary. Other explorers such as Forest Oil Corp. (FST) have drilled promising wells at Hogshooter only to get disappointing outcomes nearby, he said.

Chesapeake’s Hogshooter results “are impressive to say the least,” Nikhanj said in an e-mailed statement. “The usual caveats around this region are that the well results are highly variable from one location to the next so repeatability is questionable.”

A second Chesapeake well in the Hogshooter formation, known as Meek 41 9H, had average daily production of 1,300 barrels of oil, 365 barrels of liquids and 1.4 million cubic feet of gas during its first 27 days of operation, the company said. Two additional wells in the formation are awaiting completion.

The Hogshooter formation sits atop the company’s existing holdings in the Granite Wash formation, according to the statement. Chesapeake owns 88 percent stakes in the four Hogshooter wells and 30,000 acres of leaseholds.

Exxon Mobil Corp. (XOM) is the largest U.S. gas producer.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net