The past year was full of highlights for Chesapeake Energy Corp., but a company executive said the best could be yet to come.
Chesapeake has ensured a strong revenue stream by locking in commodity prices with its hedging program and signing joint venture deals to get partners to cover a share of its drilling costs, said Jeff Mobley, the company's senior vice president of investor relations and research.
“That gave us extra revenue and profitability,” he said. “That also gave us extra cash flow to grow with.”
More money has translated into increased drilling and production growth, Mobley said. Chesapeake has drilled extensively in the Haynesville Shale in Louisiana, in the Marcellus Shale primarily in West Virginia, Pennsylvania and New York (where there is currently a moratorium on drilling) and now is ramping up production the Eagle Ford Shale in South Texas.
Chesapeake finished the fiscal year as the No. 9 public company in the state, according to the Oklahoma Inc. rankings, on the strength of a 30.4 percent increase in earnings.
Mobley said Chesapeake is turning its attention to production after amassing large leaseholds in most of the nation's top resource plays.
The company, which has been the nation's most active driller since 2004, is shifting its focus from natural gas to oil and liquids.
Mobley said that is expected to drive Chesapeake's earnings from $5 billion this year to $11 billion by 2015 as oil and liquids production increases. The shift also will allow the company's profit margin and production to increase 50 percent over that
“That will be the natural outcome of what we've built,” he said.
Mobley said Chesapeake can stretch its operations budget further due to its vertical integration strategy, assembling its own roster of service companies to offset rising costs.
The company aims to drill wells cheaper, faster and better than other producers, he said.
“The hard work's already been done,” Mobley said. “We've captured the land. We've built the
“Now it's just simple execution.”
While Chesapeake is turning its attention away from natural gas production, Mobley said the company that proclaims itself “America's Champion of Natural Gas” remains committed to ensuring demand matches the newly discovered
He said the nation's ample supply of natural gas can be used in a number of ways, including transportation, power generation, manufacturing and even exports.
“We're working on all of those,” Mobley said.
Perhaps the most visible alternative is on the vehicle front, where Chesapeake is pushing compressed natural gas as a replacement for gasoline and diesel fuel.
“It's happening,” Mobley said. “It's on the way.”
The company is converting its vehicle fleet to run on CNG, which costs as little as 75 cents a gallon, while investing $150 million in Clean Energy Fuels to help build a network of refueling stations for heavy-duty trucks.
Mobley said Chesapeake is also working with carmakers to make more CNG vehicles available to
He said exporting natural gas to other countries remains an option, but Chesapeake official prefer to use domestic natural gas as a replacement for foreign oil.
The numbers make a compelling case for exporting natural gas, however.
Mobley said natural gas sells for up to $15 per thousand cubic feet in Asia and $10 in Europe, while the price remains about $4 in the United States.
Exporting natural gas would add another $3 to $3.50 to the price, he said, but it could happen as soon as 2015.