CHK Chesapeak - has made some interesting bets, especially in Oklahoma. They have been buying up properties, borrowing money to pay for the properties, hedging forward enough to cover most of the debt service.
They have been paying top dollar for these properties.
The propetries tend to be close or contiguous. This allows for economies of scale, and with Oklahoma's pooling laws, some other advantages. (Which are too subtle for me to undersatand)
CHK also gets all the logs, seismic, geophysical, and production data - now all in one hand.
Almost all the properties have multiple zones for possible production - and in OK this can mean 4, 5, maybe 10 zones. One or two may have been produced, and only a few are included in the reserve calculation. In Oklahoma, there are often separate oil and gas zones.
******
There's an obvious advantge in cost control and economies of scale. Besides raw cost control, it may now be worth while to add compression to increase production.
The knowledge of additional zones, etc. can mean multiple completion, some very high probablity infield drilling opportunities.
So CHK is quiet leveraged, but with the upside pretty open. Drilling for the next few years should have high returns as CHK cherry picks best opportunities. They much of current production hedged to cover debt, and easy low risk opportunities to get new unhedged production.
Going forward, I epect CHK will get better at multiple completions, and possible secondary & tertiary recovery methods - water flood, steam, CO2, solvent, etc.
Antoher advantage with CHK is their market cap has grown with acquisitions so it can have more instituional investors, and rank higher in indexes. There's a pretty good premium ( at least 20%) for being in the > 2-3 Billion dollar market cap range. Most of what they bought was under 500 million.
An insitutional buyer will see CHK as priced well under an APC Anadarko, APA Apache and the other usuall big NG companies, and now has enough shares and market cap to support large orders. |
