It Took Me by Surprise I Must Say

Things are a little different in the gas patch these days; Leasing forums,GoogleMaps,Addenda on the web are helping Lessors become informed. Imagine approaching a farmer to sign an oil & gas lease and they know more about it than you do? Hell, they didn't teach me that in Landman school!

Full Story at http://www.time.com/time/business/article/0,8599,1820884,00.html

Drillbits

Truckin, Like the Do-Dah Man

Chesapeake Energy announced after the close today that they will offer 25 million common shares with the customary 15% over allotment. Net proceeds from the offering will be used to temporarily repay outstanding indebtedness under its revolving bank credit facility which it anticipates re-borrowing from time to time to fund its recently announced drilling and leasehold acquisition initiatives and for general corporate purposes.

Take a look at the capital flows since the end of last quarter:

April 2 - Sold 23 million shares of Common netting $1.011B
May 1 - Sold Tex-Okla-Kan assets for $623 million
May 1 - Sold Woodford Shale holdings for $1.5B
May 20 - Sold $1.38B of Contingent Convertible Senior Notes netting $1.173B
May 20 - Sold $800 million of Senior Notes netting $487 million after retiring notes.
July 1 - Sold 20% interest in the Haynesville shale to Plains (PXP) for $1.65B
July 8 - Selling 28.75 shares Common to net $1.7B (estimated @$60/sh. net)

Net Cash from Equity Sales $2.71B
Net Cash from Debt Sales $1.66B
Net Cash from Asset Sales$3.77B

Total $8.14B


The $1.65B Haynesville sale to Plains Energy also includes an additional $1.65B commitment from Plains for future cost sharing to develop the play. This transaction effectively raised the value of Chesapeake's remaining 80% interest in the Haynesville by $9.5B to $13.2B. At the end of Q1, CHK's market cap was about $24B. Including the latest offering shares, as of today's close, the market cap would be $35B; up 42% (diluted) while net assets, thanks to the Haynesville alone are up 81%. The Woodford sale and Q2 net income will probably further add to net assets.

The only acquisitions announced during the period were for 18,000 acres in the Haynesville from Goodrich Petroleum and a third party for about $300 million (est.), and the Pier One building. So, going into Q3, any concerns about CHK's debt levels should be laid to rest; that is, unless Aubrey finds another Hunt Petroleum.

Sometimes the lights all shinin' on me......

Full Story at http://phx.corporate-ir.net/phoenix.zhtml?c=104617&p=irol-newsArticle&ID=1172815&highlight=

The Price of Poker Just Went Up

Dominion has agreed to assign its Marcellus rights on 205,000 acres to privately held Antero Resources of Denver, Co. for $552,000 million. Considering the accompanying 7.5% royalty override to Dominion, this transaction represents the highest amount paid to any rights holder for access to the play. The previous high price for substantial acreage was XTO's $600 million deal for Linn Energy's 152,000 acres in the same Southwest PA/Northern WV region but that deal was an outright purchase of all rights and existing production, and included $50 million of infrastructure. During XTO's Q1 conference call, Chairman Bob Simpson estimated that net-net, they had paid about $1000/acre for the Marcellus. My estimate was $1500. In this one, Dominion retains all rights to existing production and all other formations and will still receive about $2700/acre in cash. Dominion played this hand beautifully.

In addition, Dominion is announcing the proposed development of Dominion Keystone, a pipeline project that would transport new natural gas supplies from the Appalachian Basin to markets throughout the eastern United States

Full Story at http://www.dom.com/news/gas2008/pr0630_print.jsp

Trans Energy & Republic Energy JV Completes First Marcellus Well

Trans Energy, Inc. of St. Mary's, WV, announced today the completion of its first Marcellus well in Wetzel County, West Virginia. The vertical was a joint venture with Dallas, TX based Republic Energy, Inc. Republic is a privately held operator with considerable experience in the Barnett shale.

Full Story at http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/06-20-2008/0004836240&EDATE=

Drillbits

Bob Away My Blues

I'm goin' down to the river...I got my cane pole in my hand
Got me some red worms...in a Maxwell House coffee can
I'm gonna sit under a shade tree...on the riverbank where it's cool
I'm gonna close my eyes and dream and let the cork bob away my blues

Toy Caldwell, Doug Gray and The Marshall Tucker Band created such a beautiful, peaceful scene with that tune but from there does it go...

Hey! What the hell happened to my river?

On June 6, in the wake of the May 30th DEP orders to Range Resources and Chief Oil & Gas to suspend a portion of their operations at separate sites in Lycoming County for violating Pennsylvania's Clean Streams Law, the Susquehanna River Basin Commission notified 23 natural gas operators currently using or planning to use the river's water to develop Marcellus wells that they now must have approval from the commission and follow water consumption guidelines. And, last Friday, the Pennsylvania Department of Environmental Protection held a Marcellus Shale Summit for Gas Operators in Harrisburg. This first of its kind meeting in Pennsylvania was certainly a novel and excellent idea but having to have that meeting at this stage of the game is really quite extraordinary.

Here we are with the majors having spent over $5 billion so far this year to gain a foothold in the play and they needed to go to a meeting with the DEP to get informed about water use! Is it really possible that the largest natural gas E&P companies in the US, after making billion dollar commitments didn't know that they had to get permits to pump frac water from the streams? Does this change the dynamics of the Marcellus' development? I think the answers are yes and yes.

From now on when you hear the word infrastructure you need to be thinking WATER. As evidenced by 5 year paid-up lease bonuses approaching $3,000 per acre and 20% royalties, the greatest drilling interest so far has been in the southern tier of New York and the northeastern part of Pennsylvania. This region, graced by the thickest deposits, shallowest depths and proximity to the northeast's large pipelines and gas markets, is by some accounts, also graced with something more precious; the northeast's finest, most pristine, wild trout streams. Now, we'll let you build a pipeline or two but, son, you foul up one of those trout streams and you in a heap o' trouble.

No doubt there were some interesting decisions made by many of the companies in the days following the May 30th orders to Range and Chief. Landowners have reported that Range immediately stopped acquiring leases in Luzerne, Lackawanna and Wyoming counties and Cabot Oil & Gas also stopped leasing in Lackawanna. It's not yet clear whether those moves had anything to do with the water situation. Maybe they've just gone fishin'.

Full Story at http://www.ahs.dep.state.pa.us/newsreleases/default.asp?ID=5107&varQueryType=Detail

Rex Energy Updates Progress in the Marcellus

Rex Energy announced positive results for its second vertical test well in the Marcellus shale. In addition, the State College, PA based company continued to expand its acreage in the play.

Full Story at http://ir.rexenergycorp.com/phoenix.zhtml?c=211917&p=NewsArticle&id=1166462

Let's Get Those Hogs to Market

Range Resources and MarkWest Energy Partners today announced an agreement whereby MarkWest will invest $175 million over the next two years to build gathering and processing facilities for Range's development of the Marcellus shale. As a result, Range expects to deliver substantial quantities of natural gas from the play by Q1 2009.

Full Story at http://www.rangeresources.com/PressReleases.asp

Lord Stanley, No.........Lord Marcellus, Yes

The last time a Canadian hockey team won the cup (Canadiens '92-'93) was the year that Talisman Energy was formed. While US hockey teams have been sliding into the back door and snatching ole Lord Stanley for those fifteen years, the $US 24 billion Canadian gas producer has been sliding into the US and snatching up a very nice chunk of the Marcellus shale.

While doing some background work for the recent Talisman Energy/Hallwood announcement, I found that the company holds a substantial 640,000 acres in the Marcellus play. This makes them the #3 player behind Chesapeake and Range in terms of acreage.

According to Talisman's June presentation, the position is mainly on the NY-PA border with some acreage in southwestern PA very near Range Resources' highly successful horizontal completions. Furthermore, Talisman's Fortuna Energy unit (FEI) is heralded as the #1 producer of natural gas in the state of New York.

The Pennsylvania DEP website shows that Talisman's Fortuna Energy (FEI) unit has only 17 active well sites in Pennsylvania's Marcellus fairway. With 20 vertical test wells drilled since '06 and plans to drill 4 more as well as 20 horizontals by the end of next year, it won't be long that you'll see TLM on the list to the right: The Players..........

Talisman Tweaks North American Shale Plans

Calgary, Alberta, Canada based Talisman Energy, Inc. announced late yesterday that its Fortuna Energy unit (FEI) had reached an agreement with Hallwood Energy L.P to earn up to a one-third working interest in Hallwood's US properties. Talisman and its affiliates will have access to Hallwood's technical staff for assistance on its developing plays in the Montney, the Bakken, the Utica and Lorraine shales in Quebec and Marcellus shales in New York and Pennsylvania.

Full Story at http://money.cnn.com/news/newsfeeds/articles/marketwire/0405691.htm

Drillbits

Fire on the Mountain - Lightnin' in the Air

In what must be the most irresponsible writing (I'll refrain from calling it journalism) that I've ever seen, Tom Wilbur, of Binghamton, NY's Press and Sun Bulletin shows an absolute disregard for his professional reputation and that of his paper in last Sunday's article, Drilling carries a hefty environmental price.

His preference for an apocalyptic rather than informational account of the development of the Marcellus shale will leave some landowners shaking in their boots at the prospect of leasing their property to Beelzebub. Others, having surpassed Mr. Wilbur by attaining the intelligence level of a ten year old, will take some time to learn about the subject from neighbors, internet pages and forums; go to a landowner meeting or two; visit a few completed sites and steer clear of the following propaganda:

"For local property owners giddy about the prospects of their own lucrative land deals, it has been a sobering vision to see heavy equipment diverting stream beds and bright red diesel fuel flowing through ditches."

"Spectacular explosions at gas-drilling sites, shooting churning orange and black fireballs into the air and leaving columns of soot visible for miles, are not unheard of. "

"The noise of heavy equipment pounding the earth, clouds of dust settling over their house and swimming pool, and loss of control of their property are too much, Bonnie said. Town officials seem to be helpless in controlling booming noises coming from the site day and night. After a string of sleepless nights, Beagel complained to the operators, she said, and was told this: 'I know your neighbors aren't happy with us, ma'am. One came out of the woods at 2 o'clock last night swearing. But my orders are to keep this operation going'."

Full Story at http://www.pressconnects.com/apps/pbcs.dll/article?AID=/20080608/NEWS01/806080359/1001/ARCHIVE

Quest Resource Corp. Acquires PetroEdge

Quest picks up 67,000 acres inside the Marcellus fairway and 11,000 outside with the purchase of privately held PetroEdge of West Virginia. Quest also completed a previously announced farm-out agreement with a private company for 30,000 Marcellus acres in Potter Co., PA. The $140mm price tag includes the following PetroEdge assets:

• Estimated proved reserves of 99.6 Bcfe and PV-10 value of $258 million as of May 1, 2008 based off of May 1, 2008 pricing of $10.14 per MMBtu for natural gas and $105.89 per barrel (bbl) for oil.


• Estimated proved, probable and possible (3P) reserves of 650 to 675 Bcfe


• 100% operated with an average net revenue interest of 81%


• Current net production of approximately 3.3 Mmcfed, including 46 bbls per day of crude oil


• Approximately 95% of total reserves are natural gas


• Natural gas BTU content ranging from 1,160 to 1,406


• Average basis premium in Appalachia of approximately $0.30 per Mcfe over the past three years.
  
  Full Story at http://biz.yahoo.com/iw/080610/0405197.html
  

Get Ready.....Get Ready, 'Cause Here I Come

Steckman Ridge, LLC, a 50/50 joint venture of Spectra Energy and NJ Resources announces FERC approval for a 12 bcf working storage field in Bedford County, PA. The field will have access to Spectra's Texas Eastern as well as Dominion Transmission's interstate facilities.

Full Story at http://investors.spectraenergy.com/phoenix.zhtml?c=204494&p=irol-newsArticle&ID=1163563&highlight=

Drillbits

Hey Boys, We Got Laws in These Parts

Following last weeks order to Range Resources and Chief Oil & Gas to suspend a portion of their operations at separate sites in Lycoming County for violating Pennsylvania's Clean Streams Law, the Department of Environmental Protection Secretary Kathleen A. McGinty thought it appropriate today to advise oil and gas industry officials that developing the natural gas resources found in the Marcellus Shale formation must be done in accordance with the state's environmental laws and regulations.

Full Story at http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/06-06-2008/0004827961&EDATE=

Drillbits

Just How Big Is That Truck Aubrey?

Aubrey McClendon, Chairman and Chief Executive Officer of Chesapeake Energy purchased 400,000 more shares of CHK last Friday to increase his personal holdings to 32.2 million shares. The average price per share for this $21.97 million investment was $54.96. This is $2.12 more per share than the 600,000 shares he purchased the previous Friday. So far, in 2008, Aubrey has individually invested nearly $142 million in CHK common stock to purchase 3.1 million shares in the open market.

Whoa There Marcellus!

The Pennsylvania Department of Environmental Protection today ordered Range Resources and Chief Oil & Gas to suspend a portion of their operations at separate sites in Lycoming County for violating Pennsylvania's Clean Streams Law.

Full Story at http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/05-30-2008/0004823484&EDATE=

Drillbits

Still, No No Brainer

Last evening, I took an opportunity to attend a joint meeting of the Pittsburgh Association of Petroleum Geologists and the Society of Petroleum Engineers to listen to a talk by Dan Steward, author of The Barnett Shale Play - Phoenix of the Fort Worth Basin-A History (2007-Fort Worth Geological Society & The North Texas Geological Society).

I had hoped Dan's talk would further illuminate the path to the Marcellus. I'm sure it did for those who had not read his book but for my thinking, as blogged in this Tuesday's Drillbits, little was changed. Responding to audience questions, he did convey that due to the shale's characteristics, the Marcellus, notwithstanding the acreage difference, should be a much better play than the Barnett. Among the many transferrable lessons from the Barnett, however, are those urging caution.

There are already some early successes, notably Range and Atlas, but a few good holes don't make a bonanza. Relatively speaking, the biggest winners in the play for a while may well be the thousands of landowners getting $2,000-$3,000/acre for the rights to drill.

Drillbits

Hey Aubrey, Backup the Truck Will Ya?

According the Dow Jones Newswire, Aubrey McClendon, Chairman and Chief Executive Officer of Chesapeake Energy purchased another 600,000 shares of CHK last Friday to increase his personal holdings to 31.8 million shares. Prices per share for this $31.7 million investment ranged from $52.64 to $53.44. Updating our Drillbits missive of May 9th; so far, in 2008, Aubrey has individually invested over $120 million in CHK common stock to purchase 2.7mm shares.

Drillbits

Shale We Dance?

In what appears to be the first positive government/industry collaboration in the Marcellus, the Lycoming County Board of Commissioners and the Williamsport/Lycoming Chamber of Commerce have formed the Community Gas Exploration Task Force. Unlike the PA state legislature which, so far, only views the profound impact of the shale play from a "let's tax the bastards!" perspective, Lycoming County's thoughtful, intelligent approach should be applauded.

Full Story at http://www.muncyluminary.com/News/articles.asp?articleID=7667

There Might be Blood

or Please Re-Lease Me.....Let Me Go

I've decided to add a new category but I can't decide on the title. Upton or Ray? In what promises to be a developing story, early lessors in the Marcellus that received $5-$10 an acre and the standard 1/8 royalty sure have the hair up on the back of their necks.

Upton Sinclair's There Will Be Blood is certainly appropriate but it might not come to that. Ray Price's famous breakup song, Please Release Me when re-spelled is equally on the mark and for some reason, when I think of WV, I think of Ray Price. We are talkin' real country here so, landmen,....watch your back.

Full Story at http://www.forbes.com/feeds/ap/2008/05/28/ap5052926.html

Drillbits

Who wrote the book on........

I just finished reading Dan Steward's The Barnett Shale Play - Phoenix of the Fort Worth Basin-A History (2007-Fort Worth Geological Society & The North Texas Geological Society)

The media and (dare I say?) corporate hype combined with the truth of our current technology has and continues to postulate the Marcellus play as no brainer prospect. While the technology is much further advanced than in the early days of the Barnett, I was struck by the amount of trials and errors, truly prospective wildcat nature of not only Mitchell's early Barnett discoveries, but of the play's development even into the early Devon years. Those guys, in 2001, a full 20 years after the first well, after Chevron and other "big boys" had taken their balls and left the Barnett, were still playing with frac types as they related to the geology of the upper and lower containments, the the turn radii, and the frac's pressures, staging, backflow pressures and timing, the drilling locations and orientations relating to various fault types....and the list goes on and on.

Surely, to some extent, those lessons are transferable to the Marcellus but the Marcellus is not the Barnett. There will be new challenges to face and lessons to be learned. Maybe, it's because I'm really a nimrod when it comes to this stuff but, maybe, I'm just a good enough engineer to know that it ain't gonna be no no brainer.