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The Play:

Fayetteville Shale
By Cheryl Hudak

With undulating hills crisscrossed by pristine rivers, Arkansas has long been nicknamed The Natural State. Today, with the discovery and development of the Fayetteville Shale, Arkansas can also call itself The Natural Gas State.

The Fayetteville Shale formation, located between 1,000 and 8,000 feet below the bucolic landscape of North Arkansas, was discovered in late 2004 by Southwestern Energy Company (SWN). By early 2005, Chesapeake was aggressively leasing properties in White, Cleburne, Faulkner, Conway and Van Buren counties, which would comprise the core area of the play.

Today, only four years later, the Fayetteville Shale is the second most productive natural  gas shale play in the U.S. and one of the nation’s 10 largest natural gas fields of any type. Chesapeake is the second-largest producer in the play with approximately 440,000 acres of leasehold.  As of the 2009 second quarter, the company had 368 gross operated wells producing 325 million cubic feet gross per day. The company has identified more than 4,000 net future wells to be drilled in the Fayetteville, predicting that the play will have total ultimate production of up to 75 trillion cubic feet of equivalent (tcfe) – equal to that of the mighty Barnett Shale of Texas.

 

To Chesapeake employees who work in the Fayetteville, their achievement is made even sweeter by the fact that the area had no history of oil and gas development of any kind when the company entered the region.

“When we arrived here, there was no exploration and production east of Conway County,” said Rich McClanahan, District Manager, Arkansas. “In the field, we started from scratch to build a staff, construct pipelines, add drilling rigs and vendor support. It was an impressive accomplishment for the company.”

In 2005, residents of the Fayetteville Shale had no knowledge of the industry. There was no existing infrastructure for development, compression or transportation. The area had no personnel with industry experience, so finding experienced hands and crew members was a challenge.

Despite these limitations, Chesapeake drilled pilot wells in late 2005. The team’s first promising well was the Ronny 1-7 in White County, a vertical well that came in at 200-300 thousand cubic feet per day (mcf/d).

“That encouraged us to continue,” noted Craig Manaugh, Vice President – Operations, Northern Division, who at the time was assigned to the Fayetteville Shale development group. “So we drilled the Ronny 2-7H, a horizontal that we completed, borrowing some of our Barnett Shale experience. Then we drilled the Gentry 1-18H, a commercially successful horizontal well in the zone – a 2.5+ mmcf/d well – and quickly followed that up with 4 out of the next 5 being commercial wells. These early results fortified us because they were comparable rates to those found by SWN, almost 60 miles to the west, and it was becoming quickly apparent the play covered a very large area.”

Things were looking up in the Fayetteville Shale. However, success in the Arkansas shale would not be easy, because not all shales are created equal. Some, like the Barnett, are thicker and more continuous than others, with more consistent pay zones. The Fayetteville has varied pay zones, so the expertise of the company’s geological and geophysical staff plays a key role in the development.  A 50-foot error in depth calculation can make the difference between success and failure, so coordination between all disciplines on the team is particularly critical. In this shale, as in so many others, the rock analysis provided by Chesapeake’s proprietary Reservoir Technology Center in Oklahoma City contributed significantly to the company’s success.

A positive effect of the region’s lack of E&P history was that its lack of existing infrastructure allowed our team to start from scratch, planning the best way to do things, locating pipelines and mapping out the entire project to do it right the first time.

“Our learning curve was accelerated by our experience in the Barnett Shale of Texas,” said McClanahan. “What it took 19 years for the industry to accomplish in the Barnett, we did in three years in the Fayetteville.”

Manaugh also reflected on how the company leveraged the transfer of knowledge, saying, “We were moving best practices in geology, drilling and completion from one major play – the Barnett – into another potentially major play – the Fayetteville.”

Both McClanahan and Manaugh give much credit for the company’s success in the Fayetteville Shale to Chesapeake’s organizational structure, with company-owned subsidiaries providing crucial field services.

“I don’t know if we could have done this with third-party drilling and pipeline vendors – at least not at the pace we did,” McClanahan noted. “It took the full effort not only of Chesapeake Operating Inc., and our professional staff, but by all our field service subsidiaries: CMP, Nomac, MidCon and Great Plains to build this play. With those service subsidiaries, Chesapeake has all the pieces in place to be successful.”

Personnel was another major issue; with no history of energy production, Arkansas had very few skilled oil and gas professionals. The company encouraged field employees from Oklahoma and Texas to work in Arkansas.

“At first, some of our Oklahoma and Texas hands were reluctant to move to Arkansas,” Manaugh admitted. “But once they went and saw what a beautiful area Arkansas is, and how nice its communities are, they were pleased to work there.”

A Chesapeake storage reservoir makes good use of excess river water
in the Greater Little Creek Area.

Sustaining the environmental integrity of the state has been a priority from the first days of Chesapeake’s involvement in the Fayetteville Shale. “We have met with many environmental agencies, the Arkansas Game and Fish Department, the Corps of Engineers and citizens’ groups,” Manaugh said. “Our team has taken a lead to preserve and protect the environment – above and beyond industry standards. We’ve gone to great lengths, lining entire sites with plastic sheeting, building containment trenches and dikes and taking all the measures necessary to eliminate or minimize any potential contamination of the ground or water.”

McClanahan agreed. “We do everything possible to be the best operator from the environmental as well as the production perspective, so we’re implementing best practices to minimize impact. We treat the land like we would want our own land treated.”

Training programs prepare Arkansans for a new industry

Shale, Chesapeake has dramatically increased its drilling operations in the area, sparking both economic growth and demand for qualified workers.

To help meet this work force demand, Chesapeake and Nomac partnered with Arkansas State University-Beebe in Searcy to help fund the Floorhand Training Program. The first class was held in March 2007, and in its first year more than 250 men and women graduated from the program with more than half of those finding employment in the energy industry.

“The school has had a significant and positive impact on our personnel needs,” said Robert Kitchens, Nomac Operations Manager, Arkoma Region. “We look for people who will make a commitment to learn the trade and have a desire to grow with us. I look at the potential for future drillers and toolpushers with each interview. So far our retention of trainees is 73%. That tells me we have a good approach to selecting the best and most qualified people.”

“Not only does it improve the work force in the state,” he added, “but it also makes good business sense because these crews are close to home and working in their own backyards.”

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The Technology: Walking Rig

ONE STEP AT A TIME
By Laura Bauer

Finding more efficient ways of operating is at the forefront of Chesapeake’s operations team. As the company moves into new plays, it faces new challenges from unique terrain to urban drilling.

“For years, we drilled mostly in rural areas of Oklahoma and Texas, where the land was primarily flat and we weren’t in communities,” said Sam McCaskill, Senior Drilling Advisor for Nomac. “Each of our operating areas is very different. For example, the Haynesville Shale Play of northwestern Louisiana is mostly flat with some rolling hills and lots of water and trees, and the Marcellus Shale Play is mountainous and rugged.”

Nomac’s Vice President - Construction, Engineering & Maintenance, Jerry Townley, worked with his team of engineers to construct a new rig designed specifically for Haynesville operations, an area where multiwell pad drilling would achieve optimal efficiencies and leave the smallest environmental footprint. Multiwell pad drilling allows the operator to drill numerous wells from one central drilling pad with horizontal laterals extending in various directions.

Nomac rig #54 was the first of eight walking rigs
designed specifically for the Haynesville Shale. 

Nomac recently held a rigshow for more than 200 employees and vendors to demonstrate the unique characteristics of the company’s new series of rigs coined “walking rigs.” Nomac rig #54 was the first of eight walking rigs to be deployed to the Haynesville Shale.  There are currently four operating in the region.

“The Nomac walking rig’s ability to move in any direction makes it easier to center the rig over the next well. The rig also offers the flexibility to level itself after moving and the ability to move itself with a full set of drill pipe,” said Richard Ross, Haynesville Operations Manager for Nomac.

Why a walking rig?

Most rigs cannot move on their own power, and there are several traditional ways to move or skid a rig. The most common way is to use trucks and bulldozers or to skid a rig on steel rails that allow it to slide in a single direction utilizing large hydraulic jacks. The walking rig provides even more flexibility for multiwell drilling.
“The walking rig is different in that the rig does not have to be placed on skidding rails, which makes it easier to rig up,” said Townley. “It lifts itself and can move in any direction in one-foot increments. It takes about two minutes per one-foot step.”

How does it walk?

The walking rig has four hydraulic walkers, one attached to each corner of the substructure. The large hydraulic cylinders lift the entire substructure, mast, topdrive, and any drill pipe that is racked in the mast, approximately six inches, and then moves everything forward one foot. The rig is lowered back down, and the walking foot, or “stomper” as it is called in the field, is returned to its original position. This process is then repeated until the rig is walked to its desired location.

“The rig walking system allows the rig to move in any direction to the next drilling location on a multiwell pad without laying down the drill pipe, rigging down the topdrive and lowering the mast,” Townley said. Compared to conventional skids, this saves valuable time and expedites the drilling process.

The rig is equipped with four yellow
“stompers” that allow it to move in any
direction.

Nomac’s engineering and construction team worked with Veristic Technologies to construct the walking rigs, which were built in Houston. The manufacturers of the hydraulic walking system call the technology “rig walkers,” which is how Nomac named their latest technology.

“Walking” technology isn’t new according to Townley. It was first used approximately 25 years ago, mainly for off-shore drilling platforms. However, “detachable” walker technology, which allows the walkers to be moved from one rig to another, was developed within the last five years.

“There are a few drilling contractors also using rig walker technology on some of their newest rigs, and most of their rig walking systems work in the same manner as ours,” explained Townley. “The difference is that we designed ours to be interchangeable, making them usable on several rigs.”

The walking rigs also utilize topdrive technology, making them more efficient and safer to operate.

“It has a Varco TDS11 topdrive and a Varco ST80C iron roughneck, which lessens the number of times righands are actually involved in making connections with the use of manual rig tongs,” Townley explained. “This reduces the risk of a righand incurring an injury, thus increasing safety.”

As the walking rigs are being raised in northwestern Louisiana and East Texas, a new concept rig which addresses the challenges of working in a mountainous region is being developed for Chesapeake’s Appalachian operations.

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The Play: Our History

The Twentieth Anniversary
By Cheryl Hudak

The world has changed dramatically in the past 20 years: the Soviet Union has disappeared along with the Berlin Wall; the Internet has transformed the way people get information and communicate; environmentalists have stirred a growing national consciousness to Think Green; and Chesapeake Energy has grown from a fledgling to a giant, becoming one of the nation’s leading producers of natural gas.

In early May 1989, Aubrey McClendon and Tom Ward, two enterprising 30-year-old Oklahomans, shook hands and invested $50,000 in a new exploration and production company they called Chesapeake Energy Corporation. Six weeks later, the two brought their families together for a picnic celebrating the spudding of their company’s first well, the Newby 1-1 in Grady County, Oklahoma. The next day they spud the Jones 1-16 in Garvin County. They were on their way.

From 1989 to 2009, Chesapeake would have its ups and downs, but it would never fail to step into the point position in an increasingly complex natural gas industry. The company carved a niche in unconventional plays that required ever-more-complicated technology to find and produce gas. It led its own land rush, boldly acquiring choice properties that today represent the industry’s largest inventory of drilling opportunities. It embraced the future, turning with characteristic intensity to the exploration for shale gas. Its success has played a role in significantly altering the nation’s energy reserve estimates.

Chesapeake’s road to success has not, however, been without its speed bumps: a less than sterling IPO in 1993; a heartbreaking attempt to extend its Austin Chalk success from Texas to Louisiana in the mid ‘90s; and the volatile nature of the oil and gas industry, which simultaneously plunged both commodity and stock prices to historic lows in both 1999 and in 2008.

The company’s management worked its way through successive challenges, combining confidence, creativity and solid business instincts with the willingness to take risks. It modified its strategy to target a more diversified, longer reserve life and lower risk asset base. It incorporated acquisitions into its business plan. Keeping a shrewd eye on tightening supply and demand fundamentals, Chesapeake capitalized on the upward shift in natural gas prices from 2000 through 2007. Those rising prices, combined with improvements in horizontal drilling and completion technologies, encouraged the company to find and develop vast new supplies of natural gas from unconventional reservoirs such as fractured carbonates, tight sandstone and especially shales.

Ever willing to go the distance, the company rapidly increased its acreage holdings to gain the top-two positions in the nation’s four largest and most productive shale plays: the Barnett in North Texas, the Fayetteville in Arkansas, the Haynesville in northwestern Louisiana and East Texas, and the Marcellus in the upper Appalachian Basin of West Virginia, Pennsylvania and New York.

While Chesapeake was growing, so was concern over the environment. One month before the company’s founding, the tanker Exxon Valdez spilled 11 million gallons of crude oil into Alaska’s Prince William Sound. That tragedy prompted environmentalists to find their voices and focused public scrutiny on the activities of the oil and gas industry.

Throughout its rise to the forefront of the industry, Chesapeake has endeavored to operate in a manner as environmentally friendly as the clean, affordable, abundant energy alternative it produces. The company is committed to reducing its environmental footprint while helping America regain its rightful place as the leader of the worldwide environmental movement.

Chesapeake looks forward to the next 20 years, and believes the future will be filled with as much change and challenge as the past. And in the next 20, just like the last, Chesapeake will be unwilling to merely react to those changes – it will continue to initiate change to help reduce the nation’s dependence on foreign oil and to maintain the company’s position as the leading producer of the leading energy resource – natural gas.

A NEW OKLAHOMA CITY ICON

Chesapeake shared the celebration of its 20-year anniversary with its hometown by unveiling plans to present Oklahoma City with a four-story Finish Line Tower on the Oklahoma River.  The 60-foot tower will continue the development of the river that began in 2006 with the opening of the Chesapeake Boathouse. 

 

The area is becoming a world-class venue for international aquatic rowing, canoeing and kayaking competitions. Several other boathouses are now planned for construction in the next few years.

“We felt it appropriate, given what this state and city have done for us over the years,” said CEO Aubrey McClendon, “to give back to this community something very special.”

The gleaming white tower, designed by Oklahoma award-winning architect Rand Elliott with Elliott + Associates, will meet guidelines established by FISA, the international governing body for the sport of rowing.  It will be used throughout the year for both race events and community activities.

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The Technology: Saltwater Disposal

Playing it Safe
By Brandi Wessel

On the forefront of the company’s water disposal efforts is Dave Gum, a production foreman in the booming Marcellus Shale. Gum was assigned the task of building the optimum saltwater disposal. Despite his lack of engineering background, Gum met the challenge head-on by designing Chesapeake’s Elk Valley Disposal facility in Braxton County, West Virginia.

“I just took what I knew from my experience in the industry,” said Gum. “I tried to use things that I knew had worked in the past, left out what hadn’t, and incorporated things that would allow it to operate like I wished others would have.”

As a result, Gum has helped the company create one of the most advanced, efficient saltwater disposals in existence. The automated two-pump system applies the most modern technology and is capable of processing 2,100 barrels of saltwater a day. Since the pumps do not run simultaneously, the availability of a second pump means the facility is rarely offline.

“With separate pumps, the facility can work around the clock if necessary,” said Gum. “As a result, our tanks are always ready for the next truckload of water that needs to be processed, which helps keep things running smoothly.”

Dave Gum

The facility’s state-of-the art PLC monitoring system allows around-the-clock access to water processing readings. If the pressure begins to climb, the PLC automatically slows the disposal pumps to regain a safe pressure. In the event it can’t regulate the pressure to a satisfactory level or detects a problem such as a filter that needs to be changed, the system directs the fluid to the second pump. These changes trigger an automatic alert which is sent to Chesapeake disposal system operators Bill Richardson and Steve Murray.

Safety features were an important part of Gum’s design. A sensophone acts as a backup to the PLC, recording disposal readings. The sensophone’s automated call system allows Richardson and Murray access to the data and enables them to listen to the background noise at the facility in real time to ensure that the pumps are running.

“We were really careful to make this facility as fail-safe as possible,” said Gum. “Even the backup has a backup. Besides the PLC and sensophone, there’s a relay switch we can use in the event that either or both go down. The only thing that could stop us is a power outage.”

With superior equipment, the Braxton County, West Virginia, facility is a blueprint for environmentally safe operations.

Experience and state-of-the art technology merge to create a model
saltwater disposal facility in Braxton County, West Virginia.

“We worked really hard to make this site as efficient and environmentally friendly as possible,” said Gum. “We used polyethylene tanks for almost everything, which reduces the chance of leaks, and put in extra-thick concrete containment dikes to protect the area just in case a spill or leak ever does occur.”

Additionally, the pump’s drains and septic system catch any potential filter spills and pump them back to the initial storage tanks where they are reprocessed.

All this hard work hasn’t gone unnoticed. The facility is attracting the attention of individuals and organizations outside the company. The West Virginia DEP was so impressed it is using the Chesapeake facility as an example of how it would like all saltwater disposals to operate. The organization has included the disposal facility on several of its field tours, including one for the Environmental Protection Agency Region Three inspection group.

“All of Chesapeake’s sites are good, but I was really impressed with this one,” said Jamie Peterson, DEP Environmental Resource Specialist and Permitting. “It’s a fantastic facility, with top-notch loading and secondary containment areas and a great monitoring system. It’s a model of how a UIC facility should be done.”

 

Saltwater injection: going full circle for the environment

Saltwater, commonly referred to as produced water or oilfield brine, is a byproduct of natural gas and oil production. Naturally occurring in the porous rock formations that are home to oil and gas reserves, saltwater flows to the surface during production operations. Because of its high salt content, this produced water is often untreatable and unusable.

The safe management of this water through the use of saltwater disposal and injection wells is a highly monitored, necessary industry practice. By injecting the water back into its original or similar formation, operators return the water deep beneath the earth’s surface. And because each of Chesapeake’s deepwater injection wells are protected by many layers of casing and cement, as well as layers of impervious rock, the injected water cannot migrate into the freshwater aquifers far above them.

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Inside CHK

Not your granddad’s chopper

After months of research and development, the world’s first natural-gas powered chopper became a reality. Partnering with world-renowned Orange County (NY) Choppers (OCC), Chesapeake unveiled the one-of-a-kind bike at the company’s 20th anniversary celebration in Oklahoma City. Filmed as the popular show’s season finale, OCC founder, Paul Teutul, Sr,. revved the engine to thunderous applause from employees.

A fitting reveal, as the idea for the compressed natural gas (CNG) chopper came from Chesapeake’s own Steve Archer, Business Analyst in the IT Department. Archer emailed the suggestion to CEO Aubrey McClendon, and after researching the idea, Chesapeake officials approached OCC about creating a natural gas-themed bike.

“As another environmentally friendly operator, OCC loved the idea of building a muscle bike that would run on a clean fuel,” said Taylor Shinn, Manager – Corporate Development, and the leader of Chesapeake’s CNG Team.

Paul Teutul, Sr.

Although the CNG chopper still sports OCC’s usual 117-cubic-inch V-twin engine, six-speed transmission and belt drive, unlike normal OCC choppers it features a regulator rather than a normal carburetor. The bike also utilizes a “fogger” to feed gas to the engine and the gas gauge reads in pounds per square inch instead of gallons.

“The bike handles phenomenally compared to other choppers,” said Mark Harris, Chesapeake Fleet - Natural Gas Vehicle Specialist and former professional dirt track racer. “With high octane natural gas as the fuel, the cylinders run at 10.5 to 1 compression, delivering more power and more decibels. People can definitely hear you coming.”

Adorned with drillbit handlebars and a natural gas flame-inspired design found in the rims and paint, the blue and green bike is on a U.S. tour to help educate the public on the benefits of natural gas as a clean, abundant, affordable, American fuel.

“This bike shows the American people how natural gas can move everything from a chopper to a semi, and how natural gas is truly an American energy answer,” said Shinn.

Chesapeake wins corporate diversity partner award

Since arriving in the Haynesville Shale in May 2008, Chesapeake has worked to form a number of successful partnerships with small, minority-owned businesses. The company has provided a Martin Luther King Sponsorship, served as a corporate advisory member for Inner City Entrepreneurs Institute’s BizCamp and worked closely with the DeSoto Council on Aging. It has also spent time working on home rehabilitation in economically challenged neighborhoods and provided a job-shadowing opportunity for underprivileged youth.

Chesapeake’s Paul Pratt (far left) and Kevin McCotter (third from left)
accept the 2009 Corporate Diversity Partner award from the
Shreveport-Bossier African American Chamber of Commerce.

In recognition of these efforts and to salute the company’s entrepreneurial spirit, the Shreveport-Bossier African American Chamber of Commerce (SBAACC) named Chesapeake as its 2009 Corporate Diversity Partner recipient.

It was a decision that Booker White, Chairman of the SBAACC, said was not difficult.

“Chesapeake stood head and shoulders above the competition; it was a no-brainer based on our knowledge of the company and the ease at which relationships were formed with employees here in the Haynesville Shale,” said White.

John Matthews, Director of Entrepreneurial Services for the Louisiana Department of Economic Development, was also impressed with Chesapeake’s commitment to the area’s smaller businesses.

“Chesapeake has demonstrated the will to provide opportunities,” said Matthews. “I take my hat off to them because it isn’t easy to bring on a smaller company as a partner, but Chesapeake is performing a service by grooming these companies.”

Employees say thanks for 20 years of support

Chesapeake sent a special thank-you to local communities for their support during the company’s 20th anniversary when CEO Aubrey McClendon challenged employees to donate 20,000 hours of community service.

The response was overwhelming, as more than 5,000 Chesapeake employees volunteered to participate in the ambitious endeavor. Employees across the company rolled up their sleeves and built playgrounds, repaired homes, fed the homeless, cared for animals, and cleaned up local communities, rivers and lakes.

Employees clean up the playground at an elementary school in Jane
Lew, West Virginia.

“We called upon our employees to do something spectacular, something that is part of our company’s DNA, by giving 20,000 hours of volunteer efforts in our operating areas,” said Martha Burger, Senior Vice-President - Human and Corporate Resources. “And as usual, they delivered.”

After five short weeks employees had donated 26,134 hours of service to 575 organizations in more than 70 communities across the country.

“The average American works 2,000 hours a year, so if we put that person to work full time it would take them 13 years to accomplish what our employees did in just five weeks,” said Burger. “It’s really a tribute to how dedicated and caring our employees are, and the importance they place on giving back to the community.”

Leading the way in educating fleets

An attentive NGV audience in the Blue Room Theater.

Chesapeake recently hosted a natural gas vehicle (NGV) summit for the nation’s fleet owners. Presentations from NGV America and natural gas exploration and production companies Questar Corporation, Pioneer Natural Resources, Anadarko Petroleum Corporation and Apache Corporation, showcased how fleet owners can use natural gas to meet emission demands in their cities as well as save money on fuel. The summit included an overview of the variety of NGVs available for fleet owners; a visit to a new natural gas filling station in Oklahoma City; and a tour of Oklahoma Equipment Management (OEM) Systems of Carter Chevrolet, a one-stop shop for fleet purchase and conversion to natural gas. Nearly 90 attendees representing organizations such as Independent Producers of America, Consumer Energy Alliance and industry peers including Devon Energy and XTO attended the summit, creating a platform to exchange ideas.