Chesapeake Energy Corp. is expanding its position in another Barnett Shale play-that of far West Texas in the Delaware Basin, which is prospective for gas from the Woodford and Barnett shales.

The Woodford is commonly known for its potential in eastern Oklahoma, and the Barnett for its prolificacy in the Fort Worth Basin of northeastern Texas. Each is present in western Texas as well, in an area more commonly called the Permian Basin.

Chesapeake has some 400,000 net acres located in the three-county-Culberson, Reeves and Pecos-play in far West Texas, and may have 700,000 net acres in it by this month, Chesapeake chairman and chief executive Aubrey McClendon told the IPAA's Oil & Gas Investment Symposium-West attendees in San Francisco in October.

Chesapeake will have 1.2- to 1.4 million gross acres in the play, half of this net, within the month, he said. Potential is 1 trillion cubic feet per section in some areas of the play; the low-side is 200 billion cubic feet. Across 100 sections, that's "a zillion," he said. The play "could be 15 times more important to us than the Barnett (in the Fort Worth Basin)."

The gas is there, he added; the question is whether it can be extracted economically. "If this play doesn't work, it will probably be because we couldn't find enough gas to offset (higher-than-average drilling costs)." Wells in the area are expected to be expensive due to the technical nature of tapping the gas potential. (For more on this, see "Far West Texas," Oil and Gas Investor, January 2006.)

As for the Woodford Shale in eastern Oklahoma, where Newfield Exploration Co. is dominant, McClendon says Chesapeake, which was born from knowing Oklahoman gas potential, has been cautious about that potential. The company drilled its first well there recently, and production began just this past week. "We like what we see," he said.

McClendon, whose Chesapeake is some 90% gas-oriented, is bullish on gas prices. The company has a weather department, which it hired from Citigroup a few years ago. The meteorology team knows what this winter will be like, but he couldn't tell the audience, he quipped. However, he would say this coming January will likely be colder than this past January.

He applied statistics and laws of probability to the matter. Current gas futures, which were about $5 per million Btu in early October, are based on only a 300- to 500-billion-cubic-foot difference in gas storage at that time last year than this year: "(Some) 300- to 400 billion cubic feet is the whole difference between $4 gas and double-digit gas." Meanwhile, it is statistically improbable that January 2007 weather will be a repeat of January 2006, he added.

"It is clear to me we will have a different gas market in 2007 than the gas (futures) markets indicate currently." Generally, current January gas futures are too high if there is another January like that of 2006; they're too low if this January is normal. It's a winner for gas players.

He expects Chesapeake's net asset value will be unleashed next year "as people quit worrying about gas prices." Besides, the company is hedged at much higher prices, he notes.

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