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The Play: Marcellus Shale

The ups and downs of the Victory Prospect

West Virginians claim in their beautiful state, you’re either on a hill or in a hollow. A drive to the Durig 2H drillsite in remote Wetzel County, West Virginia, makes a believer out of you. Towering trees crowd the narrow road as it hugs the mountainsides with hairpin curves and brake-challenging grades. Drivers soon realize they are either going up or down; they’re seldom on a level plane.

Maybe that’s why the Eastern Division calls this drilling area the Victory Prospect – just getting the rig to the drillsite constitutes a victory!

Victory is just one of many prospects where Chesapeake is drilling for natural gas in the vast reaches of the Marcellus Shale. The Marcellus Shale Play extends from New York through Pennsylvania and into northern West Virginia.

Morning sunshine burns off the mist behind Yost #240 in Wetzel
County, West Virginia.

The Victory Prospect is located in far northern West Virginia, but its boundaries are not yet fully defined. Additional delineation wells will help determine the limits of this particular section of the Marcellus Shale. Chesapeake currently has six wells producing in the area from the shale which lies between 7,000 and 7,200 feet below the surface. Although three of these wells are vertical, the company has determined that, as in many of its other shale plays, horizontal drilling will achieve the greatest success in Victory.

Leveraging the knowledge Chesapeake has gained in other shale gas plays will play an important role in the successful development of the Marcellus Shale.

One great difference between exploration and production on the plains of Oklahoma or Texas and the rugged landscape of West Virginia is the terrain. Interestingly enough, multiwell pad drilling provides solutions in both environments.

“Finding drillable surface locations is a challenge here,” said Marc Watkins, District Manager – Chesapeake Appalachia. “That’s one reason we are using multiwell pad drilling as much as possible. The Durig 2H well eventually will be one of six wellbores on the same pad. Multiwell pad drilling leaves a smaller environmental footprint. It also saves time and reduces rig transportation challenges, which are considerable in these mountains.”

Nothing is simple in West Virginia, according to Zachary Arnold, Completion Superintendent.

Daytime Driller O.A. Oldaker, left, with Zachary Arnold,
Completion Superintendent.

“Every aspect of production is challenging here: the terrain, moving water, and developing the pipeline infrastructure. When compared to the Barnett Shale,” Arnold said, “we are working on much smaller drilling locations. Distance between sites is not so much a problem here as differences in surface elevations, which vary from 600 feet to 1,300 feet. That makes things interesting.”

The Eastern Division team develops innovative ideas to help meet each challenge. For example, the company is building a network of 100,000-gallon water ponds located throughout the prospect. Water from those ponds will move through temporary pipelines to numerous wellsites within a several-mile radius. The system will reduce the amount of water that has to be transported by trucks – thereby reducing wear and tear on winding rural roads, vehicles and nerves.

Despite its topographical variations, the Victory Prospect is no stranger to oil and gas development, which brings about another unique challenge.

“Most of Appalachia has been drilled for many years,” said Watkins. “So today in Victory we are drilling through old production fields that have been converted to gas storage in order to reach the Marcellus Shale below. These fields are actually depleted reservoirs where gas produced in other locations is re-injected to be stored until it is needed by consumers.

Hands get acquainted with pipe handling
equipment.

“As we drill, we take measures to protect the stored gas. As we drill through it, about 2,100 to 2,200 feet down, we use drilling mud to counterbalance reservoir pressure and keep the stored gas in place. Once we are through the storage horizon, we will run and cement a string of protective casing. A special cement evaluation log is run to ensure we have achieved a good seal across the storage zone.”

Using such innovative solutions, development of the Marcellus Shale is providing new opportunities from New York to Virginia. Chesapeake employees in the region are pleased to help fulfill those opportunities: implementing state-of-the art techniques, attracting a new generation of E&P professionals, and nurturing prosperity that will benefit people throughout the Appalachian Basin.

New iron in West Virginia: Yost #240 spuds its first well

No one broke a bottle of champagne over its mast, but there was plenty of excitement in Wetzel County, West Virginia, during August. That’s when Yost Rig #240 began its maiden voyage by spudding the Durig 2H well.

Inspecting the deck as Yost #240 continues its
first spud.

The newly built top-drive rig was designed to meet exacting specifications for operating in a small footprint. It contains a custom skidding system that will enable crews to drill multiple wells on the same pad without moving, and also features a hydraulic pipehandling system.

“I’m really proud to be working on this one,” said O.D. Oldaker, Daylight Driller for Yost. “I’ve been in the business since 1973, and most of the rigs operated by other companies in the area are more than 30 years old. It’s pretty exciting to be working on a new rig.”

The 10-man crew was created primarily of Yost veterans who spent much of their first days on Rig #240 in training, familiarizing themselves with the new equipment. “This first one is a learning process,” said one delighted deckhand while squinting up at the crown of the glistening new rig. “But by the time we get to the third hole, it’ll be great.”

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The Technology:

Horizontal Drilling — A lateral approach to

developing unconventional gas plays

Drilling for natural gas was once a fairly uncomplicated process: a vertical wellbore was drilled straight down until it intersected with a gas-bearing formation far below the earth’s surface. Once penetrated, the pressure of the gas caused it to move up the vertical hole for capture.

Now many of those conventional natural gas plays, characterized by relatively accessible, well-defined reservoirs, have been substantially depleted. Today a new generation of exploration and production companies are bringing up vast quantities of natural gas found in totally new types of plays – gas trapped within low-permeable rock requiring horizontal drilling and fracture stimulation to be produced. They are called unconventional plays.

Horizontal drilling in the Fayetteville Shale
of Arkansas.

To produce gas from these new plays requires unconventional methods – and one of the most important tools for success is horizontal drilling.

Horizontal drilling is the process of drilling a well from the surface down to a targeted gas-bearing formation, then turning the wellbore horizontal and continuing to drill sideways while staying within the formation.

Chesapeake got an early start developing unconventional plays, using horizontal drilling techniques to find success in the Golden Trend and Sholem Alechem fields in south central Oklahoma and in the Giddings field in southeast Texas. In 1994, the company developed its first major discovery in the Deep Giddings portion of the Texas Austin Chalk, once again employing horizontal drilling.

Through the past 20 years, Chesapeake has become a leading innovator and executor of horizontal drilling techniques.  Today its horizontal drilling expertise has made the company a premier operator in low-permeable rock gas plays from the Barnett Shale in Texas to the Marcellus Shale in the Appalachian Basin.

Urban locations such as this one in Fort Worth, Texas,
benefit from horizontal drilling. The North Texas
Metroplex lies directly over the heart of the Barnett
Shale, the nation’s largest natural gas field and the
most active drilling area in America.

Approximately one-third of the company’s current reserves are in plays that require horizontal drilling to produce, and as a result, 65% of its current drilling activity is horizontal. Five years ago it was just a fraction of that total.

“We’ve utilized horizontal drilling extensively compared to our peers,” said Steve Miller, Senior Vice President – Drilling. “Horizontal drilling gives us more exposure to the pay zone,” Miller continued. “If a zone is only 20 feet thick, you would only get 20 feet of exposure to that zone when drilling vertically. But when you kick off from the vertical and drill horizontally, following along with the zone, you can literally have thousands of feet of exposure to the gas-bearing rock.”

That exposure, when coupled with fracture stimulation completion treatments, allows large quantities of natural gas to migrate through perforation clusters spaced along the horizontal expanse of pipe, effectively draining a much larger area without drilling additional wells. It also increases production rates, which translates into a higher return on investment for the horizontal project than would be achieved by vertical drilling.

Horizontal drilling has other advantages. The fact that the wellhead is at some distance from its target allows Chesapeake to reach natural gas resources located under roads, homes and buildings – even under the airport runways at Dallas/Fort Worth International Airport – without surface disruptions.

Directional drilling used at this South Texas location is
accomplished through a process similar to that of horizontal
drilling – deflecting the drillbit from vertical to make the
wellbore slant at an angle.

The technique also allows the company to drill multiple wells from a single padsite, with the horizontal pipes extending in various directions. This multiwell pad drilling process can save time and money when rigs do not have to be taken down, transported and reset.  It also greatly reduces the footprint of natural gas exploration and production. Chesapeake uses multiwell pad drilling in many locations where it operates from Texas to New York.

In the past, horizontal drilling was more difficult and costly than drilling standard vertical wells. Today, with significant technological advances in horizontal drilling, the cost is comparable.

“It is not really more expensive to drill horizontally,” Miller said. “Manufacturers are developing an ever-improved bit selection, as well as better motors and other refinements that enhance every aspect of the process. As drillers, we are getting better too.  We learn from our experience and expand on our success.

“And no one does more horizontal drilling than we do,” he added. “Our experience and knowledge gained by drilling more horizontal wells than any other company give us the competitive advantage in developing horizontal drilling plays. Our ability to make quick decisions also helps us. We concentrate on communication, teamwork and a solid work ethic to get the job done.”

Horizontal Drilling: A Brief History

In 1891, John Smalley Campbell was issued U.S. Patent number 459152 for the use of flexible shafts to rotate drillbits, but the first recorded true horizontal oil well was drilled near Texon, Texas, in 1929.  In 1944, a 500-foot horizontal oil well was drilled in the Franklin Heavy Oil Field, Venango County, Pennsylvania.

In the following decades, exploration and production companies around the globe made attempts to drill horizontally, but it was not until the 1980s that improved downhole drilling motors and the invention of downhole telemetry equipment made horizontal drilling technology commercially viable.

Going Horizontal:  Steps in Horizontal Drilling

1. Stake location, bid construction work, prepare location and padsite, and bring in drilling rig and equipment.
2. Spud and drill vertical portion of well using conventional methods.
3. Drill kick-off (curved) section, with the use of a downhole motor
   mounted directly above the bit, in order to make the turn from vertical
   to horizontal. Downhole instruments called MWD (measurement while drilling) packages transmit sensor readings upward, allowing operators
   at the surface to build the angle.
4. Drill horizontal wellbore, still using MWD to hold the angle and direction.
5. Case off the horizontal lateral with steel casing to allow for completion and fracture stimulation, preparing the well for production.

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The Play: The Environment

Setting the Standard

Whether marked by the company’s signature blue-rimmed white tanks or painted to blend with the surrounding landscape, Chesapeake’s pristine wellsites are setting new industry standards for aesthetics and safety.

Each time the company drills and develops a new well, careful planning ensures that the site will be safe, environmentally compliant, and as attractive as possible. But not all wells are created equal. Every year, Chesapeake acquires hundreds of well sites that do not meet its stringent standards. Bringing those existing sites up to par sometimes constitutes a significant challenge.

“We acquire new properties every day,” said John Satterfield, Corporate EH&S Environmental Specialist. “Sometimes the acquisition includes only one or two locations, and other times there may be several hundred locations involved. We inspect every one of them; and if they don’t meet our standards, we bring them up to meet those standards.”

The Twin Woman 1-32, drilled in 1977, received an
extreme makeover after its acquisition by Chesapeake.
The company built containment, removed outdated
equipment and installed and painted a new separator
at the site.

Many of the company’s acquired wellsites are purchased from smaller companies, some of which did not have the financial resources or expertise to maintain them properly throughout the producing life of the well. Each time Chesapeake acquires a well, a team conducts a visual inspection of the site. They look for stains and secondary containment systems and examine the condition of tanks and equipment. They identify environmental, regulatory and operational issues. In some cases an archaeologist is brought in to determine historical or anthropological significance.

Chesapeake is one of the most active site improvers in the industry, and its standards are high.

“In some cases, we go above and beyond government regulations when we operate a well,” Satterfield said. “For instance, we conducted research to determine the most stringent regulatory standards for secondary containment for all areas where we operate – and we made that our standard for every producing well, across the board.

Specialists like Larry Ross, EH&S Representative at
Chesapeake’s Weatherford, Oklahoma, field office,
re-inspect upgraded wells annually or any time
equipment is replaced or updated.

“Our secondary containment requirement for our tanks is 150% at every location,” he explained. “That is the highest requirement we found anywhere.  Some of the sites we have acquired from other operators have had zero secondary containment. Many never had containment; others have had antiquated systems that degraded over time to the point they are no longer useful.

“Chesapeake prioritizes each site by the degree of upgrade required, its environmental sensitivity and its proximity to public view,” Satterfield said. “We also consider anything on the site that may be impeding the well’s production.”

After assessing the site and assigning an effort and cost for each element required to bring the site up to the company’s specifications and optimize production, a schedule is established: cleanup, equipment repair or replacement, new or additional containment systems, or plug and abandon the well.

Simple upgrades are addressed immediately. If needed, the location gets appropriate signage to meet local, state and federal requirements, which may include wellsite identification, National Fire Protection Association labels, no smoking signs and wind socks.

One of the group’s greatest challenges is accomplishing the required upgrades without impacting company drilling schedules and while maintaining regulatory responsibilities. It takes a team effort.

“We trust that our Acquisitions and Divestitures Department and our geology experts are acquiring sites that will produce more income than they cost to bring up to our standards,” said Debby McElreath, Corporate EH&S Environmental Specialist. “And we help coordinate the efforts of employees in Chesapeake field offices everywhere we operate.”

Each of the company’s field offices, from West Virginia to New Mexico, has staff responsible for evaluating and coordinating the upgrades to acquired sites. In areas where acquisitions are particularly active, five or six people may be involved in the process, using both internal resources and vendors to accomplish the goal of making each Chesapeake wellsite environmentally friendly as well as safe and aesthetically acceptable.

Chesapeake’s ultimate goal is not just to be the biggest operator, but the best.

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The Play: Colony Granite Wash

Natural gas success comes with a bonus of oil
By Cheryl Hudak

A group of savvy Chesapeake geologists – and their willingness to take a chance – turned an uneconomic vertical play into a giant horizontal opportunity in the Anadarko Basin’s Colony Granite Wash.

The company had been running 3-D seismic in the area, targeting the Atoka formation for a series of vertical wells, but determined the play didn’t look that promising.  Vertical wells being drilled by other operators in the same area were uneconomic, averaging about 500 thousand cubic feet per day (mcf/d).

“Studying the geology, we decided that this area might respond to horizontal applications,” said Keith Rasmussen, Senior Geologist. “So we drilled the Walton 2-10H, thinking that we’d be pleased if we got three times the production levels of the verticals. We were more than pleasantly surprised when it came in at 6,000 mcf/d with 450 barrels of oil.”

Displaying the teamwork that brought Nomac Rig #16
recognition as Rig of the Quarter are Motorman Brian
Craig and Floorman Bradford Blackcrow.

That surprise grew to elation six months later when the Musick Farms 1-11H well produced 8,000 mcf/d – with a bonus of 750 barrels of oil per day. The Music was followed by a third Granite Wash well, the Wise 1-13H, which flowed 11,000 mcf/d with 850 barrels of oil per day.

“This is a very tight, stingy, gas-bearing formation,” Rasmussen said, “but it is rich in liquids, which makes it even more valuable at the current price of oil.”

The Chesapeake team was not the first to explore the depths of the vast Anadarko Basin that covers approximately 50,000 square miles in Oklahoma, Texas, Kansas and Colorado. Since the early 1900s, its surface has been drilled more than 200,000 times to produce approximately 65 trillion cubic feet of natural gas and more than 2 billion barrels of oil. At the close of the twentieth century, the Anadarko Basin was the most prolific gas-producing area in the nation.

The Colony Granite Wash prospect (the area believed to contain hydrocarbons) is located in the lower portion of the Anadarko Basin.  It was eroded off a geologic entity called the Amarillo Uplift more than 300 million years ago. Despite the prospect’s title, the formation bearing the hydrocarbons is actually the Des Moines Granite Wash, a coarse-grained, sandy reservoir located more than two miles below the surface.  Among the Des Moines Granite Wash formation’s unique characteristics are a variety of facies, or depositional features, and complex compartmentalization. As a result, successful development from the formation requires the use of a variety of drilling and completion strategies.

 

Morning, noon or night, Chesapeake drilling rigs are part of the landscape of
western Oklahoma.

“Previous drillers couldn’t see the potential,” said Rick Green, Geoscience Manager – Anadarko. “We went in there and took the opportunity and now we’re so far ahead.  Geologists play big roles in determining our targets in this granite wash. It’s intense for geologists – to determine if we’re drilling in the right places, and using software that provides images of where our wellbore is, so we know we’re reaching our targets. Chesapeake has all the tools we need, and the company encourages the kind of innovation needed for success.”

Success also depends on teamwork according to Michael Park, District Manager – Anadarko Basin, who noted that the geoscience team works constantly with drilling specialists to help determine how to target and stay in the tricky Des Moines Granite Wash formation. They also work closely with the reservoir engineering group to determine optimum well spacing, reserves and economics. In addition, they coordinate with the area’s asset managers to decide on completion techniques.
 
“We’re at the opening phase of developing the Colony Granite Wash prospect,” Park said. “And we’re working very hard to find out early in the game how to reduce well costs while increasing production.”

Eighteen months after drilling the first horizontal well, the company has 30 producing wells in the Colony Granite Wash that have brought up more than 15 billion cubic feet of gas and one million barrels of oil. Five rigs are drilling in the area today, because wells in the low-permeability formation drain limited areas, making the Granite Wash an excellent candidate for future down spacing (infill drilling).

Another positive element was added by redefining the size of the Colony Granite Wash prospect.

“We didn’t have a good feeling for the areal extent of the play,” Rasmussen noted. “Using specific depositional models, we determined this is a much larger area than we’d originally thought.”

These factors indicate that the best is yet to come. The Colony Granite Wash has the potential to be the largest horizontal Granite Wash play in Oklahoma, and may eventually be home to more than 250 Chesapeake wells. Continually improved finding costs make the prospect even more attractive.

“Even if we end up with fewer wells – say 150,” Green said, “we will be investing more than a billion dollars in the area, and will sell at least five billion dollars of natural gas and liquids.”

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The Play: Corporate Culture

Recruiting – A New Generation of Industry Leadership
By Cheryl Hudak

Gray hair under the hard hat is one of the most widespread concerns in the oil and natural gas industry today. The reasons are well documented and understandable – a mass exodus from the industry during the oil bust days of the 1980s and 1990s, and strong competition from other industries that have prospered during the 20-year absence of the industry from the hiring scene.

For more than two decades, graduates in science and technology fields have chosen to direct their careers toward industries they consider less cyclical, more technology driven and more environmentally friendly.

As a result, one of the energy industry’s greatest challenges is to develop a new corps of oil and gas professionals who have the knowledge and experience required to meet the nation’s growing energy demands.

“Every company in this industry is trying to overcome the boom and bust stigma of the past,” said Martha Burger, Senior Vice President – Human and Corporate Resources at Chesapeake. “The first step is to get the message out to people that this is not your father’s oil and gas industry. We have to convince them that today’s energy business is high tech, stable and environmentally friendly.”

After enticing young talent to consider energy careers, the challenge becomes one of competition within the industry ranks.

Chesapeake approaches recruiting challenges with the same intensity and confidence that made it a leader in finding and developing resources in difficult, unconventional natural gas plays.

The company started its efforts about 7 years ago when Chesapeake CEO Aubrey McClendon saw the problem approaching and warned his management team of the need to attract young people into this business before today’s industry professionals begin to retire in droves over the next 5 to 15 years.

Chesapeake immediately began developing partnerships with universities to encourage students to pursue energy-related fields. It funded scholarships, built internship programs, looked for candidates in unlikely areas and encouraged its experienced professionals to serve as mentors to newly recruited hires.  Three years later, the company’s average age for an engineer had moved from 50 years to the mid-30s.

Chesapeake’s 50-acre corporate headquarters, located along two scenic creeks in a fashionable area of Oklahoma City, is a strong attraction to prospective employees. Its distinctly collegiate environment provides a career home for more than 2,700 employees who work there and refer to it as “the campus.” A 50,000-square-foot employee fitness center features weight-training, aerobics, basketball and racquetball courts and a swimming pool. Currently being enlarged to more than 70,000 square feet, the fitness center is a showplace for the company’s extensive healthy lifestyles initiatives.

“We have a unique corporate culture,” said Burger, “and it goes beyond appearances. Our atmosphere is dynamic and energetic and that appeals to the caliber of candidates we recruit.” That dynamic, distinctive culture landed Chesapeake a spot on the coveted FORTUNE 100 Best Companies to Work For® list in 2008.

The company’s use of leading-edge information systems also appeals to employment candidates, as well as its innovation and application of advanced technology in the field.

“Cutting-edge technology is critical for successful recruiting in the geosciences,” said Mark Lester, Executive Vice President – Exploration. “Candidates enjoy seeing our in-house 3-D Seismic Visualization Center. They also are wowed by Chesapeake’s Reservoir Technology Center, which allows for on-site core and sample analysis. Both facilities are firsts for Oklahoma and state of the art for the industry. Additionally, we have an excellent continuing education program, including many field trip options which allow the geoscientists to study modern and ancient depositional systems on the surface, then translate that knowledge into the subsurface to aid in the search for new plays.”

“The oil and gas exploration and production business today is incredibly high tech,” said Jeff Fisher, Senior Vice President – Production. “Our company is the heaviest user of technology in the industry, and we let recruits know that they will definitely be challenged on scientific and technology levels.

Chesapeake, with our emphasis on unconventional plays, has unique technological challenges, and we want unique solutions. At the end of the day, the students we really want to recruit are those who have made their own decisions to be part of our industry, the ones with a passion for it.”

Last year, the company’s recruiting programs reached 31 universities, colleges and graduate schools in 15 states, extending past the traditional energy academics.

“We go beyond the petroleum departments at many schools,” said Fisher. “We are recruiting chemical, mechanical and other engineering disciplines and have developed training programs to supplement their different academic backgrounds. We like the diversity and unique talents this exposes us to.”

The same technique has been applied to recruiting land management employees.

Mapping the future, Senior Geological Technician Stephen Cody
shares his expertise with intern Braydn Johnson, left, and Geologist
Nicholas Terech.

“Land management programs were virtually emptied after the ’80s,” said Henry Hood, Senior Vice President – Land and Legal and General Counsel. “So two years ago we extended our search for landmen into law schools as well as nontraditional sources. This business offers very attractive options for degreed professionals: great salaries, advancement opportunities and a more attractive lifestyle than many other career choices may offer, especially practicing law.”

Chesapeake is one of very few companies with large land departments. “We have needed a large staff to gain leasehold positions vital for success,” Hood explained. “Today, the company’s average land professional is younger than 30 years old, compared to the mid-to-late 40s only a few years ago. This age gap has actually worked in our favor because with no one in the mid ranges, there are great opportunities for rapid advancement for the younger employees – there is no ceiling to keep them down and few layers of management above them. That puts them on a fast track to career advancement.”

Hood added that the land department’s hiring rate has helped it keep up with immediate needs, but not to replace its aging work force. “We are still actively recruiting young people. With a sizable percentage of professionals turning 55 in the next five years, we have many opportunities.”

Internships play integral recruiting roles throughout the energy industry. Every year the number of interns who gain experience increases. Chesapeake interns are given the opportunity to perform real work in their fields of study. They also get to participate in the company’s culture and see if they embody the traits Chesapeake desires in its employees.

In 2008, the company employed 175 summer interns, 35 of whom have returned for second internships this year. A total of 88 interns are eligible for full time employment. Chesapeake recently kicked off our 2008–2009 College Recruitment campaign with plans to visit more than 35 universities across the United States in search of top notch engineers, geologists and law students.

“Professionals in all our divisions play strong roles in recruiting, and they really enjoy it,” said Fisher.  “They embrace the challenge of bringing new people into the industry, to encourage them and serve as mentors.

“It is rewarding for long-timers to share the industry knowledge they’ve accumulated through the decades,” Fisher said. “And that goes two ways: those long-term employees are stimulated by the dynamic ideas and enthusiasm that a new generation brings to the company.”