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The Play: Frontier and Niobrara

Chesapeake is Rocking the Rockies
in a search for liquids-rich resources
By Cheryl Hudak

Across Wyoming’s high prairie where wagon trains once followed the Bozeman Trail, Chesapeake is staking its claim in the Rocky Mountains. The company’s latest drilling initiative is taking it into the Powder River and D-J basins in eastern Wyoming and northern Colorado, where it has accumulated approximately 800,000 acres of leasehold.

Neither of these basins is new to natural gas and oil production. Both, however, are new areas of operation for Chesapeake. The resource targeted in the area is also a departure from the company’s focus during the past decade and part of a new strategy for the nation’s second-largest producer of natural gas in America – Chesapeake has set its sights on oil.

Drilling deep on the high plains, the
Wagonhound 14-1-H well in Converse
County, Wyoming, will reach total depth of
almost 16,000 feet to the Niobrara formation.

To find and produce that oil, the company’s rigs are drilling to the Niobrara and Frontier formations, where sands, limestones and shales contain massive oil and wet gas reserves in very tight reservoirs that require advanced drilling and completion techniques to produce. Most wells in the area are drilled vertically from 8,000 to 12,000 feet deep, with horizontal wellbores extending between 4,000 and 5,000 feet, reaching total depth of 12,000 to 17,000 feet.

“We are very excited about our new Rocky Mountain operations,” said Dave Wittman, District Manager – Permian and Rockies Districts, Western Division. “We are looking primarily for oil. Initially the industry considered it difficult – if not impossible – to produce oil from these tight formations. The success of the Bakken Play proved that unconventional reservoirs can produce oil.”

The Bakken, located only a few hundred miles away in North Dakota and Montana, has estimated reserves of 500 billion barrels according to the Energy Information Administration, and is now the highest-producing onshore oilfield play of the past 50 years. The hope is to duplicate that success in the Niobrara and Frontier.

Chesapeake began acquiring acreage in the Rockies in 2008, drilling the Wagonhound 23-1-H to the Frontier formation in 2009. That well came on strong at approximately 900 barrels (bbl) of oil and 1.5 million cubic feet of natural gas (mmcf) per day. A second well, the Spillman Draw, was also highly successful in the slightly shallower Niobrara formation.

Digging in – new plays require
the construction of new
gathering systems.

Oil production is being trucked out of the field while natural gas produced will be transported by pipeline to nearby Douglas, Wyoming, where the existing Kinder-Morgan processing facility will strip out the components (known as NGLs) heavier than methane (dry natural gas). These heavier components such as ethane, propane, butane, pentane, hexane, heptane and octane, bring higher prices on the market because they have higher levels of carbon, thus producing more British Thermal Units (BTUs) of energy.

As of November 2010, Chesapeake has four rigs operating in Wyoming: two in the Powder River Basin between Douglas and Casper, and two in the D-J Basin near the Colorado-Wyoming state line. Early next year, the company plans to begin drilling in northern Colorado, where the D-J Basin extends southward into the Colorado Front Range.

“We’re on the cusp of a huge discovery up here,” said Charles Ohlson, Production Superintendent, “maybe like the Bakken was a decade ago. The Niobrara, our primary target, looks widespread and oil saturated.”

Bringing up resources in the Rockies is not without challenges. In addition to the universal issues of wildlife, air quality and water sourcing and disposal, the Wyoming climate features brutal winters requiring that rigs be equipped with boilers and enclosed decks. Hydraulic fracturing (fracing) is particularly difficult in winter conditions. Other drilling challenges include meeting equipment and electrical needs and the availability of frac crews.

Another challenge is infrastructure development. Mike Newkirk, Construction Foreman for Chesapeake Midstream Management L.L.C., has been working in the Rocky Mountain region in addition to his assignment in Arkansas’ Fayetteville Shale.

“Each play has separate challenges when it comes to gathering pipelines,” Newkirk said. “Here in the Rockies, the sandy topsoil means we have to dig the trench, lay pipe and fill at the same time because the sand slides right back in place and can fill up the trench before we ever lay pipe.”

As always, Newkirk’s team keeps a sharp eye on environmental issues. “In this part of the Rockies the flat terrain creates very long visibility,” Newkirk explained, “so we’re building pipeline with minimal right-of-way to avoid scarring the landscape. We are doing everything we can to reduce our environmental impact. Tanks will be painted to fade into the landscape.”

Newkirk’s team has the skills to achieve this goal: during four years of pipeline construction in Arkansas’ Fayetteville Shale, the group has not received a single notice of an environmental violation.

“We’re on the cusp of a huge discovery up here. maybe like the Bakken was a decade ago.”

Unconventional thinking bridges the value gap

The reason behind Chesapeake’s strategic move into the development and production of oil and liquids-rich gas is simple – it’s about economics. Recently there has been a significant and growing value gap between oil and natural gas prices. On December 1, 2010, oil was priced at $86.75 per barrel, or $14.45 per British Thermal Unit (BTU) using a 6:1 ratio, and natural gas at $4.27. Recognizing this trend several years ago, Chesapeake began exploring for unconventional oil in 2007, with its first discovery in Oklahoma’s Colony Granite Wash in early 2008.

The company began building leasehold positions in these plays, which are called unconventional because the resources lie in ultra-tight reservoirs that require advanced drilling and completion technologies for successful development.

Currently, Chesapeake has substantial acreage in two Granite Wash plays as well as the Tonkawa Play in Oklahoma and Texas; the Cleveland and Mississippian plays in Oklahoma and southern Kansas; the Wolfcamp, Eagle Ford Shale and Bone Spring plays in Texas; and the Avalon Shale in southern New Mexico. These represent some of the nation’s top prospects for unconventional oil and natural gas liquids production.

By year-end 2015, the company expects its liquids production to reach 250,000 barrels (bbl) per day, which would represent 20-25% of Chesapeake’s total production.

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The Technology: Geographic Information Systems

Location, Location, Location
By Cheryl Hudak

There are more uses for modern mapping systems than locating the nearest Starbucks.

Almost every Chesapeake office, whether it is located at the company’s Oklahoma City corporate campus, a regional headquarters, a local field office or a drilling pad doghouse, contains a wall hung with colorful and continually changing maps. While the subject matter, appearance and data varies, each map is the product of one of the industry’s most extensive advanced Geographic Information System (GIS) teams.

“The natural gas and oil industry has the most complex demands for GIS than any business I’ve ever been involved in,” said Julie Parker, Chesapeake Director – GIS Services. “Every place we map is different. Everything in the exploration and production industry is spatial and deals with the earth’s surface. And there are so many exceptions to the standard rules of mapping in this industry. That makes it very interesting.”

Daniel Wortham, Senior GIS Analyst, led the
team’s development of a system that enables
field personnel to drop padsite renderings into
high resolution elevation models using a
ruggedized computer called the Trimble Yuma.
Such innovations help analyze potential drillsites
on the spot, saving time and reducing costs.

GIS is the newest generation of the ancient art of cartography, or mapmaking. Although cartographic tools advanced with technology and experience through the millennia, the majority of maps were still hand drawn in the 1950s and 60s. Desktop mapping software was developed in the 80s and 90s, which changed things significantly. But what really propelled GIS for non-governmental use was the development of desktop GIS software and the advent of the Internet. Within a few short years businesses were making use of spatial information being disseminated by state and federal GIS data clearinghouses holding millions of information bits in centralized accessible databases.

“Even 20 years ago it took days or weeks to produce a map we can do today in minutes,” said Parker, who has enjoyed being a part of the GIS revolution. “I spent the first 15 years of my career evangelizing about GIS technology. But when I came to Chesapeake in 2006, the company already knew they needed GIS. Now I spend my time not selling, but implementing – and it has been Very exciting.”

At the time Parker joined Chesapeake, the GIS group was “basically five guys creating leasehold polygons and putting them on maps for the Land Department.” Now, in addition to mapping our leasehold, GIS analysts embedded with Land staff are producing maps and analysis depicting our business environment and fostering more informed decision making. Today, her nearly 60-member team represents the largest GIS staff in the industry and includes trained geographers, cartographers and specialists in cultural/historical/physical geography, meteorology and other earth or information sciences.

Colorful legends help users identify
critical data on millions of acres of
Chesapeake leasehold.

Members of the GIS team are also embedded in many of the company’s business units to provide information they need to make business decisions and solve problems. Six GIS analysts specializing in Corporate Development mapping are located in the Barnett and Haynesville shales of Texas and Louisiana, as well as in Marcellus Shale offices in Harrisburg and Towanda, Pennsylvania, providing Corporate Development and regulatory personnel with regionalized information and maps for public education, presentations and other uses.

From its early involvement with only the Land Department, Chesapeake’s GIS team now works with almost every department in the company, including Land, Geology, Drilling, Meteorology, Reservoir Engineering, Acquisitions and Divestitures, and Regulatory. New services are being developed that will help Chesapeake reservoir engineers calculate gas in place in a reservoir, and a program that will help Accounting determine which city or municipality is actually home to a producing well, so production taxes can be remitted to the appropriate entity.

Land is still the company’s largest GIS user. “That is understandable due to the fact that without Land assets, the company has no drilling or production, it’s the foundation of everything we do as a company,” Parker said. “We help them move fast to acquire large swaths of acreage before our competitors. When we enter a new area, our Land Department takes us from nothing to thousands of acres in the blink of an eye. Once acquired, it’s crucial that leases and mineral rights acquisitions are mapped quickly so decision-makers have an accurate and timely representation of our land assets as well as competitor activities.”

Julie Parker, Director – GIS Services, and
Heather Cadenhead, GIS Analyst II, review
maps generated at corporate headquarters
in Oklahoma City.

GIS employees consider theirs a service department. “We want to provide value to the company. So when we go into a new area, we ask, ‘What kinds of information do you need to make your job easier or your decisions more informed? What’s keeping you up at night?’ Our staff members are both artists and technologists who can help them solve problems and communicate the solutions through maps,” Parker said.

What kind of information can a GIS-based map communicate? It holds an amazing variety of data: the company’s position in a specific area, competitors positioned around it, where to locate drillsites or pipelines, the location of wetlands, residential areas and potential environmental issues.

Information from mapping technologies enables Chesapeake to consider new ways to cut drilling costs, optimize rig mobilizations and deal with site restrictions. Operations applications have been a major initiative since early 2009, according to Parker.

“Working so closely with field employees has led to some very interesting situations,” Parker explained. “We started in the Marcellus Shale with GIS mapping of the extreme topography they have in that area, using high-resolution digital elevation models (DEMs) to help them determine pipeline routing, potential padsite locations, access roads, and construction estimates.” Next, we combined the use of DEMs with mobile GPS units for site characterization and well-staking in the Haynesville.

How did that work?

A field engineer from the area reported to Parker: “It’s such a time saver I’m about to get teary-eyed just telling you about it!” Parker noted they are now moving those services into other operating areas facing similar topographic challenges, such as the new Rocky Mountain plays.

The future is not around the corner in the world of GIS – it is here. The innovations come fast and furious.

“Our newest innovations focus on deploying maps to the Web and mobile devices in an effort to make GIS data and maps more accessible to the entire company, especially field personnel,” Parker said. “For example, we’re using small, GPS-enabled tablet personal computers where field personnel can drop a CAD drawing of a padsite onto a map of a potential location and manipulate it to determine how and where to drill a well. It saves time and money for field crews, geology and surveying.”

The next big thing in GIS appears to be Web-based mapping applications using the explosively growing technology of mobile devices (smart phones and others) to develop highly advanced map mechanicals geared to individual users. One example of this new direction is the mapping application for Blackberry users recently deployed by our Midstream GIS colleagues. For the benefit of the average person, Parker translated the advanced technology into common terms. “Think of those welcome voices we all hear more and more frequently in smart phone applications: ‘Should we map from your current location?’”

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The Play: Cleveland

Sure Bet
By Laura Bauer

Simple geology and CHK experience make drilling in the Cleveland a smart play
Rolling prairies, brilliant sunsets and oil have long been staples of Northwest Oklahoma. The Anadarko Basin, potentially the largest nonshale resource play in the Mid-Continent, stretches across approximately 50,000 square miles in Oklahoma, Texas, Kansas and Colorado.

Sitting fairly shallow in the basin, the Cleveland Play covers six counties in Oklahoma and the Texas panhandle. The history of this play started in the 1960s and 70s with traditional vertical drilling. But when companies began drilling horizontally in the early 2000s, a whole new world of reserves opened up according to Ted Campbell, Northern Mid-Continent District Manager.

“As verticals, they were marginal, but as horizontals, these wells are extremely prolific,” he explained.

Driller Mark Evans, helps set the direction
and pace.

Chesapeake developed its first well in the Cleveland Play in 2005 and has drilled 57 since, with the average well developing 139,000 barrels of oil and 1.9 million cubic feet/day (mmcf) of natural gas. The company has approximately 500,000 net Cleveland leasehold acres.

From an investment perspective, this play is a sure bet. The tight gas formation is rich in liquids and has low finding costs, giving it a strong rate of return.

“It’s simple geology,” said Campbell. “There aren’t a lot of underground structures. The formations are stacked like pancakes, making it predictable and tame, especially compared to many of our other operating areas.”

The play is considered conventional because it is a thick marine-shelf siltstone and sandstone sequence at a relatively shallow depth of about 7,800 feet. It also helps that much of the operating area is flat and easy to access.

But where Chesapeake gets the real bang for its buck is in its completion methods, especially when compared to its peers.

“On average Chesapeake spends about $4 million to drill and complete a Cleveland horizontal well while our peers spend about $3 million,” explained Campbell, “But you get what you pay for, and we end up getting about twice the reserves.”

He says it boils down to the completion method, which the company has learned through experience in shale plays and other unconventional horizontal targets and has transferred to the Cleveland Play. Chesapeake uses a “perf and plug” method of hydraulic fracturing, which ultimately creates more cracks in the formation and generates a greater volume of reserves. Through more stages, more water and more sand, Chesapeake is accessing more rock.

“Completion methods on Chesapeake-operated wells are more productive,” Campbell said.

For example, on average a Chesapeake well in the Cleveland Play will generate 455,000 barrels of oil equivalent (boe) using 2.5 million pounds of sand, while a peer gets 220,000 boe and uses less than 750,000 pounds of sand. Chesapeake’s finding costs are $1.44 per mcfe compared to peers that have an average of $2.32 per mcfe. Their methods may be quicker and cheaper, but they are shortchanging what they could get over the life of the well.

Nomac Rig #118 uses horizontal
drilling and hydraulic fracturing
technology to pull up reserves once
locked in thick sand from the Cleveland
Play in Ellis County, Oklahoma.

To add to the simplicity of geology and terrain, another major factor that makes this a sure bet is that the Cleveland Play is in the heart of oilfield country.

“This is a very mature gas field, and the infrastructure is in place to support drilling operations,” Campbell said. From drilling service companies to pipeline infrastructure to local communities, it’s very easy to operate in this part of the country and finding quality local help is easy too.

“Many of Chesapeake’s operations people and Nomac drilling employees are working in their own backyards,” Campbell added.

Thanks to the talent of homegrown employees, readily available infrastructure and technological advantages, Chesapeake’s Cleveland Play will keep fueling Oklahomans for many generations to come.

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The Environment: Green Frac™

Natural gas production gets even Greener
By Brandi Wessel

As the most active driller of new wells in the nation, Chesapeake knows a thing or two about hydraulic fracturing, commonly known as fracing. The company is continuing to utilize the proven technology to unlock vast new reserves of natural gas across the U.S.

Constantly looking for ways to improve this key completion process, Chesapeake founded the Green Frac™ program in October 2009. The industry-leading program focuses on evaluating and improving the environmental footprint of hydraulic fracturing additives. A key part of the Green Frac process is a thorough examination of the necessity of each of the additives commonly used.

“Each fracing company we work with uses its own fracing mixture, and mixtures change from area to area depending on the characteristics of the target formation,” said Jeff Fisher, Senior Vice President – Production. “By working with our vendors and through careful laboratory and field evaluations, we’ve been able to review the ingredients used in our completion operations and eliminate 25% of the additives used in frac fluids in most of our shale plays.”

The majority of the remaining frac chemicals in the mixtures can be found in common everyday products such as laundry detergents, cleaners, beauty products and even food and beverage items.

“Chemicals like potassium chloride, which is used in table salt substitutes, are things you come in contact with every day,” said Fisher. “Other chemicals, despite being historically classified as toxic, like pH-adjusting agents and chlorine-based sanitization aids, can be found in frac fluids in approximately the same concentration that you use in your backyard swimming pool.”

Green Frac also acknowledges that regardless of its makeup, care must be taken when working with any type of chemical, and that training for employees and vendors is essential.

“It’s all about proper use and handling,” stated Fisher. “Everyone keeps chemicals that are considered hazardous in their house, but they take the proper precautions – keeping them out of the reach of children, only using them as directed, not drinking the Drano. Through Green Frac, we’re establishing simple guidelines and training for ourselves and our vendors to ensure their safety and the safety of the public and the environment during fracing operations.”

Despite the common household uses of a number of fracing chemicals, Chesapeake’s Green Frac initiative is actively identifying and testing more environmentally friendly fracing products. Through the Green Frac process, Chesapeake has found substitutes for several of the necessary fracturing additives. In fact, the company has successfully tested nonchemical alternatives to replace certain additives and effectively utilized products commonly used in municipal drinking water systems.

“If more environmentally friendly options are available, we want to use them,” said Fisher. “We’re studying and testing products used in areas around the world, such as the North Sea, to see if they can be incorporated into our fracture stimulation processes.”

In addition to its operations efforts, Green Frac is also working to educate the public about the fracing process and its necessity in the production of American natural gas.

“With natural gas operations increasing across the country, it’s important that we do all we can to teach people about the process,” said Fisher. “There are a lot of common misconceptions about the industry and fear of the unknown. By openly discussing fracing and disclosing as much information as possible, we’re hoping to alleviate those fears and dispel common myths.”

What is Hydraulic Fracturing?

To learn more about the hydraulic fracturing
process, view the Winter 2009 issue of
The Play online at CHK.com or visit
hydraulicfracturing.com.

Hydraulic fracturing, or fracing, is a proven technique that has been successfully used by the natural gas and oil industry since the 1940s to maximize the production of a well. The highly sophisticated and carefully engineered process creates small fissures, or fractures, in underground rock formations to allow natural gas or oil to flow into the wellbore and up to the surface. During this process, water, sand and a small amount of additives are pumped at extremely high pressures into the wellbore to fracture the formation. The sand or proppants used in the frac fluid hold the newly created cracks open, allowing natural gas or oil to flow into the wellbore.

Frac fluids are composed of 99.5% sand and water, along with a small amount of special-purpose additives, typically a friction reducer, gelling agent and antibacterial agents. This mixture varies, depending on the characteristics of the producing formation and the well.

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Inside CHK

A closer look at Chesapeake’s people and progress

Military Recruitment Efforts Pay Off

Two years ago Chesapeake started a strategic military recruitment effort which has proven successful, with military veterans now employed in every major shale play. This effort has earned the company national recognition with Chesapeake recently named by G.I. JOBS magazine to the 2011 Top 100 Military-Friendly Employer list. The company currently employs 37 individuals who have served as Junior Military Officers (JMOs) and more than 100 former servicemen who joined the company through an industry recruiting program called Troops 2 Roughnecks.

  

Chesapeake CEO Aubrey McClendon meets with employees who were hired as
part of the company’s military recruitment initiative.

“Chesapeake’s military recruiting initiative has proven to be more successful than we ever expected. It is clearly a win-win for our company, as well as the personnel we have hired,” explained Kip Welch, Chesapeake Director – Recruitment. “Our recruiting efforts engage the sourcing of military candidates for entry-level positions, as well as more senior-level positions where leadership traits are critical. It is very gratifying to offer jobs to such great men and women who have returned home from defending our country.”

On the “Christmas Nice List”

Chesapeake Plaza in Fort Worth, Texas, has become a holiday destination. The company’s corporate office attracts Texans from near and far who enjoy the brilliantly lit building and trees. The office has been flooded with positOn the “Christmas Nice List” ive comments by telephone and email, and a local radio station named Chesapeake’s colorful display to its Christmas “Nice List.”

CHK partners with CNOOC for Eagle Ford Shale development

Getting up close to the shale, Chesapeake

and CNOOC executives tour the company’s

Reservoir Technology Center.

Chesapeake and CNOOC Limited are now partners in a project cooperation agreement to accelerate development of the Eagle Ford Shale in South Texas. In a transaction closing November 15, 2010, Chesapeake sold a 33.3% interest in its Eagle Ford Shale assets to CNOOC Limited for $1.08 billion. In addition, CNOOC will fund 75% of Chesapeake’s share of drilling and completion costs in the development, up to $1.08 billion.

“We are very pleased to have partnered with CNOOC in completing our fifth industry shale development transaction,” said Aubrey McClendon, Chesapeake’s CEO. “We look forward to accelerating the development of this large domestic natural gas and oil resource.”

Fu Chengyu, Chairman of CNOOC, said, “We are delighted to close the transaction and further grow our business in line with our overseas development strategy. With our partner’s expertise and experience in the shale natural gas and oil development, I believe the project will bring substantial benefits to both parties.”

Employees unite for United Way

Chesapeake employees brought the Live United slogan to life during the company’s annual month-long United Way fundraising campaign. Employees from across the company banded together to pledge contributions, purchase raffle tickets, bid in silent auctions and even show off their cooking skills to raise money for the nonprofit organization.

Employees follow the yellow brick road to a
record-setting United Way Campaign.

“It’s a great opportunity for employees to come together and have a lot of fun while raising money for a terrific cause,” said Martha Burger, Senior Vice President - Human and Corporate Resources.

To further encourage employee participation, the company matched employee contributions dollar-for-dollar. In total, more than $4.7 million was raised for local United Way chapters in seven states.

“There are so many individuals less fortunate than us and giving to United Way is the best way I know to reach those in the most need. My Chesapeake co-workers have made me so proud,” said Twila Christy, Fort Worth Office Administrator and member of the campaign subcommittee.