ThePlay
The
Play
Spring 2011
A quarterly publication of Chesapeake Energy Corporation
Ready for business,
Driller William
Fuller works on
Nomac Rig #243 in
Marshall County,
West Virginia.
CHK’S RESERVES/PRODUCTION
3.5
Average daily production (Bcfe/day)
Reserves in Bcfe
150,000
100,000
50,000
YE’ 2006
YE’ 2007
YE’ 2008
YE’ 2009
YE’ 2010
175
Estimated oil production
Estimated natural gas production
3.0
200,000
200
Oil production
Natural gas production
150
Average operated rig count
Estimated rig count
2.5
125
2.0
100
1.5
75
1.0
50
0.5
25
0
4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 11E 12E
’04
2005
2006
2007
2008
2009
2010
0
The Play: Bone Spring
Average operated rig count
4.0
Unrisked, unproved reserves
Proved reserves
250,000
0
2
PRODUCTION
RESERVES
300,000
CONTENTS SPRING 2011
Rigging up for a new play in the
legendary Permian Basin
4
Neighbors Great and Small
Protecting wildlife at every phase
of natural gas and oil development
8
CHK’S OPERATING AREA MAP
Powder River Basin
Niobrara and Frontier
The Play: Marcellus Shale
Anadarko Basin
Williston Basin
Cleveland/Tonkawa and Mississippian
DJ Basin
Niobrara and Codell
Marcellus Shale
Dynamic operations supply energy
while enlivening local economies
10
What Price Power?
Finding better, more cost-effective
ways to produce energy
12
Inside Chesapeake
A closer look at the company’s
people and progress
CHESAPEAKE ENERGY
CORPORATION is the secondAnadarko Basin
Texas Panhandle Granite Wash
Anadarko Basin
Colony Granite Wash
Haynesville Shale
Permian Basin
Delaware Basin
Permian Basin
Midland Basin
Natural gas plays
Liquids plays
States with CHK leasehold
Printed on recycled paper
Barnett Shale
South Texas
Eagle Ford Shale
Bossier Shale
largest producer of natural gas, a Top 15
producer of oil and natural gas liquids
and the most active driller of new wells
in the U.S. Headquartered in Oklahoma
City, the company’s operations are
focused on discovering and developing
unconventional natural gas and oil
fields onshore in the U.S. Chesapeake
owns leading positions in the Barnett,
Fayetteville, Haynesville, Marcellus and
Bossier natural gas shale plays and in
the Eagle Ford, Granite Wash, Cleveland,
Tonkawa, Mississippian, Wolfcamp, Bone
Spring, Avalon, Niobrara and Williston
Basin unconventional liquids plays. The
company has also vertically integrated
its operations and owns substantial
midstream, compression, drilling and
oilfield service assets.
ThePlay
Play
SPRING 2011
THE PLAY: THE ACTIVE EXPLORATION FOR NATURAL GAS, OR THE AREA BEING EXPLORED
OR LEASED; SEISMIC ACTIVITY, LEASING, WILDCATTING IN OR ON A TREND.
EXECUTIVE PROFILE
THE ACCOMPLISHMENTS OF JEFF MOBLEY,
CHESAPEAKE’S SENIOR VICE PRESIDENT – INVESTOR
RELATIONS AND RESEARCH, REINFORCE THE
THEORY THAT EVERYTHING YOU LEARN TODAY
CONTRIBUTES TO YOUR FUTURE SUCCESS.
Mobley joined Chesapeake in May 2005,
excited by Aubrey McClendon’s plans to establish
a dedicated Investor Relations and Research
“I AM VERY PROUD OF HOW WELL
Department in the company.
THE COMPANY NAVIGATED SUCH
Raised on a farm and ranch in southern New
VOLATILE COMMODITY AND
Mexico, Mobley received an agriculture business
FINANCIAL MARKETS OVER THE
degree with honors from New Mexico State
PAST FEW YEARS. IT’S TRULY AN
University and later became the second-youngest
IMPRESSIVE ACCOMPLISHMENT.”
MBA student in his class at the Wharton School of
Business at the University of Pennsylvania.
Mobley’s interest in commodities first led him
to trading and marketing agricultural products for Archer Daniels Midland,
a major agribusiness conglomerate. Following graduate school, he worked
in finance on a variety of private equity investments and capital markets
transactions in both corporate and investment banking roles. His analytical
and financial market interests led him to an equity research career with
Raymond James & Associates where he covered exploration and production
Jeff Mobley
companies, including Chesapeake.
Senior Vice President Investor Relations and Research
“I didn’t have intentions of becoming an investor relations (IR) professional,” Mobley said. “But I realized that at Chesapeake – and only at Chesapeake –
would I have the ability to combine all the experience I gained earlier in my career and pursue multiple interests.
“I had no doubts about joining the company in the spring of 2005,” he said. “As an equity research analyst I had rated CHK shares a ‘strong buy’ at $16 stock
and had projected a $34 price over the next year. And it happened in six months! Certainly, I thought very highly of the company and also believed that Aubrey
and Steve Dixon were two of the best leaders in the industry.
“What I couldn’t appreciate at that time was the velocity of business at Chesapeake – the speed and skill of its operations – and how well its business is
orchestrated, particularly for a company of its size. Those characteristics cannot be fully appreciated from outside the company.”
Mobley’s charge at Chesapeake was to establish a group to articulate what the company accomplishes in its business and to communicate effectively with
the company’s investors.
“One of our key objectives is to help achieve better pricing of the company’s debt and equity securities,” Mobley said. The IR and Research Department also
provides research and analysis on oil and natural gas markets for Chesapeake’s highly successful hedging program.
Following the departure of Tom Ward, a co-founder and former President of the company, Mobley was added to the company’s hedging committee, and
today he is a primary executor of Chesapeake’s hedging transactions, along with McClendon and Nick Dell’Osso, Chesapeake’s CFO. What’s been the biggest
source of excitement and pride during his six years with the company?
“Far more has happened in Chesapeake than anyone could have predicted,” Mobley said. “I am very proud of how well the company navigated such volatile
commodity and financial markets over the past few years. It’s truly an impressive accomplishment.”
Over the past six years, Mobley’s IR and Research team has helped execute 26 debt and equity offerings and disseminated more than 250 press releases,
and its efforts have gained market recognition and awards from IR Global Rankings, IR Magazine and Institutional Investor Magazine, very significant honors in
the national investor relations field.
The Play Spring 2011
THE PLAY:
BONE SPRING
MILESANDMILESOFTEXAS
On the surface, not much changes in the Permian
Basin of West Texas. The sun shines. The wind
blows. The flat, semi-arid landscape stretches from
horizon to horizon. For hundreds of miles, there is
only silence, broken occasionally by the squeak of a
windmill or the thump of a pumpjack.
By Cheryl Hudak
IT’S RIG UP TIME AGAIN
IN THE PERMIAN BASIN
Working as a team, Production Superintendent Chip
Roemisch, left, and Completion Superintendent Mark
Mabe study a field map in the Midland, Texas, office.
Below, night lighting on the Monroe 34-205 1 H in
Ward County, Texas, enables crews to work around
the clock. Far right, a desert panorama of the Blacktip
1-21 2H in Ward County, Texas.
2
The Play Spring 2011
BENEATH THE GROUND HOWEVER,
THIS LEGENDARY FIELD HAS MORE PLAYS
THAN WILLIAM SHAKESPEARE. AND THE
DRAMA OF FINDING AND DEVELOPING
THOSE VAST NATURAL GAS AND OIL RESOURCES HAS CONTINUED FOR ALMOST
A HUNDRED YEARS.
Bringing up oil begins with finding it,
land and leasing requirements, reserves,
and the complicated geology of the region coordinating well completions and tie-ins
presents a challenge.
for oil and gas gathering.
“The targeted interval of the Bone Spring
“This play is completion and technology
formation lies about 9,000 to 10,500 feet
driven,” said Jay Stratton, Permian District
deep, between the Avalon Shale formation Manager. “So cost control and optimizing
above and the Wolfcamp below,” said David completions for productivity is the name of
Godsey – Geoscience Manager of the Perm- the game. We improve our return on investToday, Chesapeake Energy Corporaian District, Western Division. “Actually, in ment by doing the same numbers of perfotion is opening a new play in the South
the Bone Spring there are three sequences of ration clusters, but in fewer frack stages, balPermian’s Bone Spring formation, as part
sand interspersed with intervening carbon- ancing the cost of fracking with well output.”
of its transition to more liquids-rich asset
Walker admits that he is fascinated with
bases, which the company is doing to take ates and organic source bed shales. It’s althe fracking process.
advantage of the significant and persistent most like a patchwork quilt or a mosaic.”
Currently,
the
com“Fracking is the greatest thing
value gap that has developed between
pany is primarily active in “THE BONE SPRING
I’ve ever done, other than having
natural gas and oil prices.
the
deepest
of
the
three
kids,” he said. “It is all about
The company’s first Bone Spring well,
PLAY
IS
ONE
OF
A
LONG
making the most contact between
University 19-14 W 1H, was drilled in Febru- Bone Spring strata. After
the wellbore and the reservoir,
ary 2007. The game changer, however, was drilling to the appropriate SERIES OF ENERGY
BOOMS
IN
THIS
REGION.
vertical
depth,
the
welland fracking is how you do it. It’s
the Johnson 1-76 1H in Loving County, Texbore kicks off to move
pretty cool to think of everything
AND MOST PEOPLE
as, which opened with initial production
horizontally
through
one
you can do in a frack job to get
(IP) of 1,000 barrels of oil equivalent per day
DIDN’T THINK WE
of the more porous sand- COULD STILL DRILL
the best results from a well. And
(boe/d). The company’s last four wells in
stone
layers.
The
well
is
you see those results in less than a
the region had IP exceeding 1,000 boe/d, in1,000-BARREL-PER-DAY
week when the frack is complete.
cluding the Monroe 1-17 1H in Ward County, completed by hydraulic
which IP’d at 2,195 boe/d, including 3.1 mil- fracturing, which creates WELLS DOWN HERE.” We’re really proud of what we do.
lion cubic feet (mmcf/d) of natural gas and
1,665 barrels of oil per day (bbs/d).
In February 2011, Chesapeake was operating five rigs in Loving, Reeves and Ward
counties, Texas, and partnering with Anadarko Petroleum Corporation on another six
fissures into the impermeable shale layers Out here we say we work 24/7 to get cheap
wells. Chesapeake has identienergy to America.”
fied approximately 1,600 poten- that lie above and below it.
“This is not as easy as it sounds,” Godsey
Success requires an interdisciplinary
tial wellsites on 270,000 acres
said,
explaining
that
the
targeted
sandstone
team
that includes the asset manager,
of leasehold in the Bone Spring
intervals are only about 12 feet thick.
geologist, reservoir engineer, landman,
and adjacent Avalon Shale,
How
do
they
fi
nd
those
slim
targets,
drilldrilling engineer, petrophysicist and
which extends into New Mexico.
ing down as far as two miles beneath the sur- representative from Chesapeake Energy
The liquids-rich aspect of
Marketing Inc. (CEMI). Drilling, production
the play is particularly attractive face of the earth?
“It is a deductive process,” Godsey said. and transportation groups also meet every
to Chesapeake, with oil repre“We do a lot of mapping and analyzing of
two weeks with their Anadarko counterparts
senting approximately 75% of
existing
wells
and
how
they
produce.
It’s
to plan development for the Chesapeakethe Bone Spring reserves. The
Anadarko partnership wells.
company is targeting 350 thou- similar to zooming in on a city map with a
computer
mapping
system
–
each
map
is
There is a long way to go in the Bone
sand barrels of oil (mbo) and an
estimated 890 million cubic feet progressively more detailed – until we arrive Spring Play. Its full extent has yet to be deterat a map of the ‘sweet spot,’ showing sand
mined, so drilling crews are moving north
(mmcf) of natural gas per well in the play.
within the Bone Spring and finally, oil in
and northwest to evaluate its boundaries.
“The Permian is more drilled up than
place
in
the
particular
strata.”
Currently, oil is being trucked out of the area
any oil play in the U.S., except maybe OklaThe enormous volume of data means
and gas is transported by pipelines with an
homa,” said Josh Walker – Asset Manager,
expanded infrastructure under construction
Permian Basin. “Midland, Texas, is the hub computers are the indispensible tools of
geologists
and
geophysicists.
But
they
still
to accommodate new oil and gas production.
of the Permian, and almost everyone in town
“How are we going to take this play from
is involved in the natural gas and oil industry. rely on their own knowledge, experience
and
common
sense,
which
are
critical
two
rigs to the rig count we have in ChesaTwo years ago, when most cities in America
peake’s other successful plays?” Walker
had double-digit unemployment, Midland as they interpret and analyze the data
provided
by
well
logs
and
complex
mapping
asked. “Well, there’s not a doubt in anyone’s
had a negative unemployment rate!
systems. The process involves a wide range mind that it will get done. No one out here
“The Bone Spring Play is one of a long
series of energy booms in this region,” Walk- of high-tech disciplines, as well as fracture says, ‘We can’t do that.’ Our field guys are
gung ho. We all are.”
er added, “and most people didn’t think we stimulation models to determine how to
provide each well maximum contact with
That gung ho attitude may be one more
could still drill 1,000-barrel-per-day wells
the
surrounding
rock.
thing
that never changes in West Texas.
down here.”
Ultimately, wellsite selection depends on
even broader factors than geology, such as
3
The Play Spring 2011
THE ENVIRONMENT:
SPECIES PROTECTION
NEIGHBORS AREN’T ALWAYS
THE PEOPLE YOU PASS ON THE STREET,
SIT NEXT TO IN CHURCH OR SEE IN THE
LOCAL GROCERY STORE. THEY ARE
ALSO THE FURRY, FEATHERED AND
SCALY CREATURES THAT SHARE OUR
WORLD EVERY DAY. While these neighbors do not have voices of their own,
Chesapeake continues to look out for
their well-being throughout our operations. As an environmentally friendly
Dunes sagebrush lizard
operator and good neighbor, the company strives at every phase of development, from wellsite selection to restoration, to protect all creatures, including
vulnerable species and their habitats.
“When we begin looking at
potential wellsite locations in areas
identified as habitats of endangered
As a proactive measure for site
planning, Chesapeake reviews both
federal and state Threatened and
Endangered Species lists (T&E lists)
and their locations so that these areas
can be evaluated as soon as possible.
There are currently more than 1,240
wildlife species listed by the U.S. Fish
and Wildlife Service, as well as 796
plant varieties on these lists.
Some of these species have
unique habitat and life cycle
requirements, and a number of
special techniques are required to
avoid impacting them. For example,
when working within a two-mile
radius of areas known to be home to
the endangered American burying
beetle, Chesapeake hires a consultant
to trap and relocate or bait-away the
insects before beginning work on any
construction projects.
The company also recognizes
local creatures that are not listed
on the T&E lists, but are protected
by separate regulations. Animals
chicken in Colorado, Kansas, New
Mexico, Oklahoma and Texas,” said
Miller. “We have to be familiar with
the unique ecosystem in their areas
to ensure that all of these species are
continuously protected throughout
our operations.”
In addition to these efforts,
Chesapeake also implements a
number of best management practices
(BMPs) at its locations, lease roads
and rights-of-way to control erosion
and sediment run-off that might have
a negative impact on lakes, streams or
rivers. The company’s BMPs can be as
simple as preserving as many healthy
trees near a location as possible,
or constructing sites with natural
contour lines to flow with the land.
More intensive methods include using
silt fences to intercept sediment and
creating temporary berms or ridges
similar to pond dams to channel water
appropriately.
After construction on any project is complete, Chesapeake uses sod,
mulch, seeding and vegetation buffer
strips at the top and bottom of slopes
H
GREAT&SMALL
By Brandi Wessel
PROTECTING OUR NEIGHBORS
4
or sensitive species, a survey is
conducted to determine the potential
impact of our operations,” said
Dewayne Miller, Regulatory Affairs
Environmental Specialist, who has
a master’s degree in Wildlife and
Fisheries Ecology and is a certified
wildlife biologist and wetland scientist.
“If we determine that a location could
impact animals, habitat or specific
vegetation in an area, we look for ways
to move the location or, if possible,
conduct our operations during natural
migratory or hibernation periods
when the species are not present.”
The Play Spring 2011
such as the bald and golden eagle
are protected under the Bald and
Golden Eagle Protection Act of 1940
and the Migratory Bird Treaty Act of
1918. Chesapeake must also consider
candidate species – animals that
have sufficient data to support their
inclusion on the T&E lists, but have
been left off due to the higher priority
of other species.
“There are a number of candidate
species that are not listed on the T&E
lists in the areas where we operate,
like the dunes sagebrush lizard in New
Mexico, the yellowcheek darter in
Arkansas and the lesser prairie
and critical locations to stabilize soil
and eliminate erosion. Local vegetation is also replanted around the site.
“Through recent years we have
developed a number of BMPs to
help minimize our impact on local
habitats,” said Miller. “These practices
are continually evaluated and added
to as we expand our technologies and
operating knowledge. We also work
with state organizations and nonprofits
to protect the environment for future
generations.”
Platanthera leucophaea
Eastern prairie fringed orchid
5
A few of our protected neighbors
Haliaeetus leucocephalus
Bald eagle
L
“IF WE DETERMINE THAT A LOCATION
COULD IMPACT ANIMALS, HABITAT
OR SPECIFIC VEGETATION IN AN
AREA, WE LOOK FOR WAYS TO MOVE
THE LOCATION OR, IF POSSIBLE,
CONDUCT OUR OPERATIONS
DURING NATURAL MIGRATORY OR
HIBERNATION PERIODS WHEN THE
SPECIES ARE NOT PRESENT.”
Lesser prairie chicken
Tympanuchus pallidicinctus
Nicrophorus americanus
American burying beetle
■ AMERICAN BURYING BEETLE – Listed as an
endangered species by the U.S. Fish and Wildlife
Service, the American burying beetle distribution
encompasses eight states, including Arkansas, Kansas,
Massachusetts, Nebraska, Oklahoma, Rhode Island,
South Dakota and Texas.
■ BALD EAGLE – Standing as the symbol of our
nation, the bald eagle is protected under the Bald and
Golden Eagle Protection Act of 1940 and the Migratory
Bird Treaty Act of 1918.
■ DUNES SAGEBRUSH LIZARD – The dunes sagebrush lizard calls the deserts of New Mexico and four
western counties in Texas (Andrews, Gaines, Ward and
Winkler) home and was petitioned for listing as a threatened or endangered species under the U.S. Endangered
Species Act in 2002. The dunes sagebrush lizard is
currently a candidate species.
■ EASTERN PRAIRIE FRINGED ORCHID – Found
throughout the Midwest, the native perennial plant was
listed as a threatened species in 1989.
■ GRAY BAT – The gray bat lives year-round in caves
in the southern U.S. and was listed as an endangered
species in 1976.
■ LESSER PRAIRIE CHICKEN – Once abundant
across the American prairie, the lesser prairie chicken can
now only be seen in sandhills and prairies of western
Oklahoma, the Texas Panhandle, the Llano Estacado of
Texas and eastern New Mexico, as well as rarely in southeastern Colorado and western Kansas. The lesser prairie
chicken was petitioned for listing in 1995 and is currently
a level two candidate species, which is the level just prior
to being listed.
■ SPECKLED POCKETBOOK – Only found in a sixmile stretch of the Middle Fork of the Little Red River in
Arkansas, the speckled pocketbook is a freshwater mussel
that was listed as an endangered species in 1989.
■ YELLOWCHEEK DARTER – The yellowcheek
darter calls four tributaries of the upper Little Red River in
Arkansas home and is currently a candidate for listing.
The Play Spring 2011
Keeping the lights on
in Wyalusing Borough
Wyalusing Borough, located in the southeast corner of Bradford County, Pennsylvania, sits serenely on the Susquehanna
River. Covering approximately one and a half square miles,
the borough is home to approximately 570 residents.
The borough owns property in Wyalusing Township and recently signed a lease to drill with Chesapeake. Funds from
the lease bonus will enable the borough to move forward on several
community projects.
One of the potential projects is repairing and upgrading storm drains. Being so close to a river and sitting only
750 feet above sea level, flooding can
be a real problem in the Wyalusing
Borough, according to Secretary and
Treasurer Stacy Hart.
“We haven’t finalized how we will
spend the funds, but repairing water
drains is on the list,” Hart explained.
Also slated for repair are the street lights on Main Street,
which only work intermittently.
“The lease bonus means a lot to our small community. It
gives us the financial boost to expedite many of these projects,” she added.
6
The Play Spring 2011
BOO
THE PLAY:
MARCELLUS SHALE
OOMING
ING
OOM
By Laura Bauer
Business is
Marcellus Shale operations continue to provide growing supplies of natural gas
FOR 200 YEARS, THE APPALACHIAN MOUNTAINS HAVE PROVIDED ENERGY FOR AMERICA IN THE FORM OF COAL.
SINCE TECHNOLOGICAL ADVANCES RECENTLY UNLOCKED THE MYSTERIES OF SHALE GAS DEVELOPMENT, THE AREA
NOW PRODUCES A MUCH CLEANER ENERGY SOURCE, NATURAL GAS. AND CHESAPEAKE IS HELPING PAVE THE WAY.
With an estimated 500 trillion cubic feet (tcf) of technically recoverable reserves, the Marcellus Shale is likely to become
one of the two largest natural gas fields in the U.S. Chesapeake has a number-one position in the play, with more than 1.7
million acres of leasehold and 90 tcf equivalent of net unrisked, unproved potential. The company currently has 33 drilling
rigs producing natural gas and oil, with plans to drill approximately 300 wells in 2011.
7
The Play Spring 2011
(Continued from page 7)
Chesapeake first put down roots in
the Appalachian Basin in late 2005 with
the $2.2 billion acquisition of Columbia
Natural Resources, a West Virginia-based
natural gas producer. Aggressive by nature,
Chesapeake didn’t waste any time finding
a local drilling company to expedite
drilling operations. In 2006, the company
purchased a local drilling company, Gene
D. Yost & Son, Inc. (Yost). As a Chesapeake
subsidiary, Yost’s first priority was servicing
Chesapeake’s Eastern Division operations.
Yost was founded in 1960 by Gene Yost
and over the years had earned a solid repu-
8
sidiaries often traded rigs, information and
training, so it made sense when Yost came
under the Nomac umbrella in January 2009.
“By blending Yost into Nomac, we
tation in the community. When it was acquired by Chesapeake, Yost was operated were able to better align Chesapeake’s drilling services programs by having a central
by Gene’s son, Duane Yost. The company
had 15 drilling rigs, trucks to move the rigs drilling entity, rather than two separate
and a variety of ground-based equipment. groups,” explained Dave Fisher, Chesapeake Vice President - Drilling Services.
At that time, the company primarily proThe result has improved knowledge
vided excavation services, and the coal intransfer
across Nomac’s operations and
dustry was an important part of Yost’s busistreamlined training and safety processes.
ness for many years. Its drilling activities
centered around dewatering wells, shallow Nomac currently has 107 rigs operating in
seven states.
gas wells and degasifier wells to bleed off
the methane released when miners cut into
coal. Once acquired by Chesapeake, the
company’s focus shifted to natural gas drilling operations.
Chesapeake continued acquiring leases and spud its first vertical Marcellus Shale
test well, the Altman 1, in September 2006. It
was drilled by Yost rig #290.
For a couple of years, Yost continued
to operate as Chesapeake’s Eastern Division drilling company, while Nomac Drilling serviced the rest of the company’s
Dennis and Brett Boyanowski
operating areas. The two Chesapeake sub-
The Play Spring 2011
Nomac’s Eastern Division Training Center
and Housing Facility opened in November
and trains locals to work in the region.
Saving the family farm
Dennis and Sherre Boyanowski met in 1965 when
Sherre’s family bought 400-plus acres next to
Dennis’ family farm on Dolittle Hill in Wyoming
County, Pennsylvania. Dennis’ family had lived
there since 1925. Several years later, Dennis and
Sherre married, combining both their lives and
their acreage.
They used their 565 acres to
maintain a herd of 35 dairy
cows and provide for their four
children. As with many farmers,
keeping the farm afloat has been
difficult and paying the tax bill a
struggle. The surface disturbance
payments they received from
Chesapeake for two padsites
planned for their property
came at just the right moment,
covering the tax bill at a time
when they had no other solution.
The Boyanowskis’ partnership
with Chesapeake allowed them to keep the
property and preserve the family farm.
The first two wells, the Franclaire E 6H and
Franclaire W 4H, started drilling earlier this year.
9
“BY INVESTING IN THIS
TRAINING CENTER, WE
ARE PREPPING FOR AN
INCREASE IN WORKER
KNOWLEDGE AND
EXPERTISE IN THIS PART
OF THE COUNTRY.”
“Now that we have the same drillworkers. To help develop a local skilled laing company from the Eagle Ford Shale in
bor force, Nomac built a training center and
South Texas to the Marcellus Shale in Penn- housing facility in Sayre, Pennsylvania. The
sylvania, we are able to share efficiencies
company’s Eastern Training Center and
and improve overall operaHousing Facility is a nearly
tions,” Fisher added.
40,000-square-foot campus
SINCE
JANUARY
2008,
But there’s nothing quite CHESAPEAKE HAS PAID that serves as both housing
like operating in the East.
and training grounds for 266
NEARLY
$1.2
BILLION
With mountainous terrain,
workers at a time. The center
TO LANDOWNERS IN
winding roads, steep cliffs
opened in November 2010.
LEASE-BONUS
PAYMENTS
and icy weather, operating in
“By investing in this
the Marcellus Shale poses its AND ROYALTIES IN
training center, we are prepown sets of challenges.
PENNSYLVANIA ALONE. ping for an increase in work“There was definitely a
er knowledge and expertise
learning curve in the Marcellus Shale. Safe- in this part of the country,” said Fisher. “We
ty is always a priority, and ensuring we had currently have to fly crews from other opthe proper training and equipment is a big erating areas here to help man the rigs, but
deal,” said Fisher.
now we can accelerate recruitment and
Another challenge was finding quali- train people from the communities where
fied workers to man the rigs. In all its opera- we are drilling.”
tions, Chesapeake hires locally whenever
The last six years have proved fruitful
possible. Since drilling was new to the refor both Chesapeake and local communigion, there wasn’t a large pool of qualified ties boosted by Marcellus Shale operations.
While many states struggle economically,
those with drilling operations are experiencing an economic stimulus through direct lease bonuses and tax payments. In addition, many businesses are thriving due to
the additional work in the region.
Since January 2008, Chesapeake
has paid nearly $1.2 billion to landowners
in lease-bonus payments and royalties in
Pennsylvania alone. It also awarded more
than $350 million in contracts to vendors
and provided more than $1.5 million in support to local hospitals, service groups, libraries, economic development and other
community organizations in the state. Other states with Marcellus Shale operations
are also reaping the benefits. With a more
than 200-year supply of natural gas in the
U.S., the boom is here to stay as the Appalachian region continues providing clean energy for America.
The Play Spring 2011
THE TECHNOLOGY:
HIGH-TECH ENERGY SAVINGS
Solar-powered
battery unit
HOW FAR WOULD YOUR
ELECTRIC PAYMENT GO IN
THE ENERGY BUSINESS?
10
REDUCINGTHE
REDUCING
THE
PRICE
OF
POW
PRICE OF PO
By Laura Bauer
Considering that an average home uses
1,300 kilowatt hours of electricity per
month at a cost of $130, your electric
payment would pay for:
■ 150 Supervisory Control and Data
Acquisition (SCADA) wellsite reporting
systems. These solar/battery-powered
systems collect well production data and
automatically report it on an ongoing basis.
■ One 1,800-watt Cathode Protection
System, which controls pipeline and well
casing corrosion by applying a small electric
current to the metal pipe, allowing another
“sacrificial” piece of metal in the system to
corrode, instead of the pipe.
Or, 10 average homes would run one 25horsepower gas compressor for one month.
Or, 80 homes would run one 200-horsepower
electrical submersible pump, which pumps
large amounts of fluid up the well casing
for processing.
New programs help Chesapeake
manage the energy required to produce energy
The Play Spring 2011
as through the use of controls, variable speed
drives and higher efficiency motors. An example is
optimizing electrical power line design.
“In our Pennsylvania frack water pumping project, we changed the type of water transRigs have to turn, gas has to be compressed, fer pipe so we can have a single pump station at
the river instead of multiple pump sites along the
pumps have to move liquids from storage tanks
transfer line. This reduces the length of the utility
to collection points, production data has to be
transmitted and well casings and pipelines have power line,” Chapman explained. “We saved more
to be electrically charged to protect against corro- than $1 million for every 10 miles we reduced the
sion. If that’s not enough, offices have to be lit and power line length.”
Chesapeake is also changing the structurcooled, computer systems have to be powered
al way we obtain electrical energy. In some areas,
and cell phones have to be charged.
such as our Niobrara Play in WyoAll this energy comes at a
hefty price; Chesapeake pays
“IN NORTHERN OKLAHOMA ming, we are aggregating loads to
get a rate reduction. With aggre$21.5 million a year for electric
WE
REDUCED
POWER
COSTS
gated loads, one meter is used for
power. More than $17 million of
that total is used in operations and ABOUT $8,000 PER MONTH all wellsites in an area, which results in lower prices.
about $4.5 million in corporate FROM ALFALFA ELECTRIC
COOPERATIVE BY USING THE
“In northern Oklahoma,”
and field offices.
To help Chesapeake manage AGGREGATED LOAD CONCEPT Chapman said, “we reduced
power costs about $8,000 per
energy costs, electrical engineer IN SUPPLYING POWER
month from Alfalfa Electric CoTerry Chapman recently joined the TO OUR ELECTRICAL
operative by using the aggregated
company’s Engineering Technolload concept in supplying power
ogy Group (ETG) as Engineering SUBMERSIBLE PUMPS.”
Advisor – Power and Special Projects. He is tasked to our electrical submersible pumps.”
In some locations the company is able to
with setting new standards and guidelines on
everything related to power: procurement, proto- generate its own electricity by using natural gaspowered generators or other alternative energy
cols and safety.
It is a daunting – and growing – challenge that sources. Natural gas generators avoid the high cost
involves rethinking how we use energy, as well as of running utility lines at the company’s Millers
dealing with 120 different utility companies located and Pleasants compression facilities in West
in states throughout Chesapeake’s operating areas. Virginia and at vapor recovery units in western
Oklahoma. On the Pauline 1-9 well in Kingfisher,
LIKE MOST COMMERCIAL POWER
USERS, CHESAPEAKE IS BILLED DIFFERENTLY Oklahoma, a portable power unit uses wind
energy with battery storage to power a pumpjack.
THAN A RESIDENTIAL CUSTOMER.
Solar-powered batteries are used to transmit
Its power bills are comprised of three parts:
production data at many wellsites.
an energy charge based on the amount of total
CHESAPEAKE ALSO REDUCES TOTAL
electricity consumed, a demand charge based on
the company’s maximum usage for any 15-minute ENERGY COSTS BY SWITCHING TO ELECTRIC
period during the previous 12 months, and
POWERED DRILLING RIGS. Most of its drilling
miscellaneous items such as fuel charges, taxes rigs are diesel fueled, the cost of which is not
and special assessments.
included in the $21.5 million electric bill. In the
“We use monthly utility reports to review
Barnett Shale of North Texas, where large volumes
how much energy we use and how we are
of electricity are available, five rigs are powered
charged,” Chapman said. “The reports are closely directly through the urban electric grid.
monitored to evaluate rates and recover billing
“Electric grid drilling uses more electricity,
errors. We stay abreast of energy market dynamics but it reduces Chesapeake’s overall energy
as we deal with power producers, whether they costs because electric drilling, when you have
are rural cooperatives, regulated monopolies or access to it, is less expensive than diesel drilling,”
deregulated entities.”
Chapman noted.
Andrew McCalmont, Manager – Gas STAR,
Regardless of its source, Chesapeake is
Power and Projects, said, “We understand that as finding better, more cost-effective ways to produce
Chesapeake grows its oil and gas production,
energy, and employees like Chapman and
we need better interaction among the staff, our
McCalmont are helping.
field personnel and power providers. Through
“We’re catalysts,” Chapman said. “But the
Terry Chapman’s efforts, we are addressing some larger value of the Engineering Technology Group
very important issues which translate directly
is that when we do our jobs really well, someone
to the bottom line.”
else’s projects go better, too.”
Chapman also focuses on cost reductions
through engineering design and planning, as well
IT TAKES MORE THAN BRILLIANT SCIENTISTS AND HARDWORKING FIELDHANDS
TO BRING UP NATURAL GAS AND OIL IN TODAY’S HIGH-TECH ENERGY INDUSTRY.
Wind energy
portable power unit
11
Use of solar and wind power adds
up to savings on the Pauline 1-9
well in Kingfisher, Oklahoma.
WER
OWER
The Play Spring 2011
INSIDECHK
INSIDE
CHK
12
A closer look at Chesapeake’s people and progress
CHESAPEAKE CLIMBS IN FORTUNE
RANKINGS AS A GREAT PLACE TO WORK
For the fourth consecutive year, Chesapeake Energy Corporation was
named to FORTUNE magazine’s 100 Best Companies to Work For® list. The company was listed as number 32, up from number 34 in 2009, and is the highest ranking company in Oklahoma and the highest ranking energy producer.
“We are honored and excited to have been selected again this year as one of
America’s best places to work,” CEO Aubrey McClendon said. “We have long recognized that our employees are our most valuable asset and we continue to look for
innovative ways to enhance their professional and personal experience at
our company. Chesapeake’s unique
corporate culture of achievement and
innovation, along with cutting-edge
benefits, have enabled us to attract and
retain what we believe is the best talent
in the industry.”
To determine the rankings, FORTUNE partners with the Great Place To Work
Institute®, which conducts random surveys, asking employees about leadership,
communication, programs and policies. Entrants also submit a culture audit, explaining the company’s benefits, incentive programs and other perks available to employees.
Some of Chesapeake’s culture audit highlights included its outstanding 401(k), in which
the company matches contributions up to 15%
of salary; a $1,500 annual Living Well bonus,
which employees can earn by participating in
healthy activities; a generous sense of community service, wherein employees
gave more than 30,000 hours in volunteer time to community programs; and a
work atmosphere that facilitates personal achievement and innovation.
ThePlay
is designed and published each quarter by the Corporate
Communications Department of Chesapeake Energy
Corporation, P.O. Box 18128, Oklahoma City, OK 73154-0128.
Telephone 405-935-4761
Email the editor, Cheryl Hudak, at publications@chk.com.
“The Play” is online at www.chk.com under Media Resources.
This publication includes “forward-looking statements” that give our current expectations or forecasts
of future events, including estimates of oil and natural gas reserves, projected production and future
development plans. Factors that could cause actual results to differ materially from expected results are
described in “Risk Factors” in the Prospectus Supplement we filed with the U.S. Securities and Exchange
Commission on July 10, 2008. These risk factors include the volatility of natural gas and oil prices;
the limitations our level of indebtedness may have on our financial flexibility; our ability to compete
effectively against strong independent natural gas and oil companies and majors; the availability
of capital on an economic basis, including planned asset monetization transactions, to fund reserve
replacement costs; our ability to replace reserves and sustain production; uncertainties inherent in
estimating quantities of natural gas and oil reserves and projecting future rates of production and
the amount and timing of development expenditures; uncertainties in evaluating natural gas and oil
reserves of acquired properties and associated potential liabilities; our ability to effectively consolidate
and integrate acquired properties and operations; unsuccessful exploration and development drilling;
declines in the values of our natural gas and oil properties resulting in ceiling test write-downs; risks
associated with our oil and natural gas hedging program, including realizations on hedged natural
gas and oil sales that are lower than market prices, collateral required to secure hedging liabilities and
losses resulting from counterparty failure; the negative impact lower natural gas and oil prices could
have on our ability to borrow; drilling and operating risks, including potential environmental liabilities;
production interruptions that could adversely affect our cash flow; and pending or future litigation.
Although we believe the expectations and forecasts reflected in our forward-looking statements are
reasonable, we can give no assurance they will prove to have been correct.
The Play Spring 2011
Chesapeake recently
sold its Fayetteville Shale
assets to BHP Billiton Petroleum, a wholly owned
subsidiary of BHP Billiton Limited (NYSE:BHP;
ASX:BHP), for approximately $4.75 billion. The transaction included existing net production of approximately 415 million
cubic feet of natural gas equivalent per day and midstream
assets with approximately
420 miles of pipeline. As part “THIS TRANSACTION ALLOWS
of the transaction, ChesaCHESAPEAKE TO ACHIEVE
peake has agreed to provide SUBSTANTIAL PROGRESS IN
essential services for up to IMPLEMENTING THE DEBT
one year for BHP Billiton’s
REDUCTION TARGETS OF OUR
Fayetteville properties for an PREVIOUSLY ANNOUNCED
agreed-upon fee.
25/25 PLAN.”
Aubrey McClendon,
Chesapeake’s CEO, commented, “We are pleased to complete the sale of our Fayetteville Shale assets to BHP Billiton. I would also like to personally thank all of the Chesapeake
employees who throughout the past six years helped build this field into a world-class natural gas asset. This transaction allows Chesapeake to achieve substantial progress in implementing the debt reduction targets of our previously announced 25/25 Plan. We look forward to replacing the Fayetteville production through substantial growth from our other world-class natural gas plays and also from our rapidly growing higher margin liquids-rich plays in the year ahead.”
SALE OF
ARKANSAS ASSETS
IS COMPLETED
Goodwill employees take a few
minutes off the job to celebrate the
opening of the Chesapeake Energy
Environmental Recycling Center.
13
Recycling center reduces strain on
landfills while creating “green” jobs
Goodwill Industries of Central Oklahoma recently opened the
Chesapeake Energy Environmental Recycling Center. The 40,000-squarefoot, state-of-the-art recycling center will enable Goodwill to increase
its capacity to divert materials from
Oklahoma landfills from 6 to10 million
“GOODWILL IS PROUD
pounds per year, which equates to
one-third of all goods that would have
TO PARTNER WITH
been destined for Oklahoma City-area
CHESAPEAKE TO
landfills, while creating approximately 80
INCREASE AWARENESS
“green” jobs for disabled Oklahomans.
OF THE POSITIVE
In 2010, Goodwill received 8.5 milENVIRONMENTAL
lion pounds of donated goods and recyclables. With Chesapeake’s support,
IMPACT ON THE STATE
the organization was able to recycle 95%
OF OKLAHOMA FROM
of that material, keeping all but 392,000
DONATED HOUSEHOLD
pounds from Oklahoma landfills.
GOODS AND CON“Goodwill is proud to partner with
SUMER RECYCLABLES
Chesapeake to increase awareness of
the positive environmental impact on the TO GOODWILL.”
state of Oklahoma from donated household goods and consumer recyclables to Goodwill,” said Heather Rennebohm, CEO of Goodwill Industries of Central Oklahoma. “Their gift not only
has created this center, but has supported our aspirations to create more
sustainable eco-friendly jobs for disadvantaged individuals”
Martha Burger, Chesapeake’s Senior Vice President – Human & Corporate Resources, said, “We applaud Goodwill Industries of Central Oklahoma’s proactive efforts to reduce our state’s environmental footprint; and we
are proud to help them accomplish this goal with the establishment of the
Chesapeake Energy Environmental Recycling Center.”
The Play Spring 2011
PROUDLY
ENERGIZING
AMERICA’S ECONOMY
At a time when America is still seeking an economic lift, Chesapeake Energy Corporation is stimulating business and
industry of all kinds, making a remarkable difference everywhere we operate. We proudly stand as the number one
driller and second-largest producer of clean, affordable, abundant, American natural gas. We’re helping create millions
of dollars in unprecedented revenue for state and local governments, giving landowners and leaseholders welcome
new income and putting thousands of skilled workers back on the job. And we’re doing all of this while helping
move our country toward energy freedom. Today, more than ever, Chesapeake is Fueling America’s Future®. chk.com
TWITTER.COM/CHESAPEAKE
FACEBOOK.COM/CHESAPEAKE
YOUTUBE.COM/CHESAPEAKEENERGY
NYSE: CHK
T