Full steam ahead, Chesapeake Energy Corp., Oklahoma City, (NYSE: CHK) plans to acquire large leasehold positions between 250,000 to 750,000 net acres in new liquids-rich plays, reducing its gas footprint in favor of oily unconventional resources in the near term, the company announced in a quarterly update.

Chesapeake chief executive Aubrey McClendon says, "After a very aggressive effort to capture leasehold in the first half of 2010 in a large number of highly competitive liquids-rich unconventional plays, the company expects to become a significant seller of leasehold in the second half of 2010 and in 2011 through planned joint-venture transactions.

"Chesapeake's goal is to reach a balanced mix of natural gas and liquids revenue as quickly as possible," McClendon adds. Chesapeake plans to shift its capital spending mix between natural gas plays and liquids-rich plays to approximately 45/55 by year-end 2012. By year-end 2015, the company expects to increase liquids production to approximately 200,000 barrels per day, or approximately 25% of total production and 40% of production revenue "Chesapeake's transition will be transformative for our company and its shareholders," McClendon says.

According to Chesapeake, within one year of acquisition, the company will sell a minority interest in a new play, recovering all or virtually all of the cost to acquire the leasehold in the play and to fund a significant portion of its future drilling costs.

Further, Chesapeake will accelerate drilling of liquids-rich plays until year-end 2012 when the company's drilling capital expenditures are balanced approximately 50/50 between natural gas plays and liquids-rich plays, and will continue adding proved reserves, net of monetizations and divestitures, of approximately 2.5- to 3 trillion cubic feet equivalent (415- to 500 million barrels of oil equivalent) annually.

Play by play

Chesapeake boasts the largest combined inventories of onshore leasehold at 13.9 million net acres and 3-D seismic of 25.5 million acres in the U.S., with the largest inventory of U.S. shale gas acreage at 2.8 million net acres. The company also owns the largest inventory of leasehold in two popular new liquids-rich plays—the Eagle Ford and Niobrara shales.

In the South Texas Eagle Ford shale, Chesapeake holds approximately 550,000 net acres, an increase of approximately 150,000 net acres from first-quarter 2010. The company expects to conclude ongoing Eagle Ford joint-venture discussions and to announce a joint-venture transaction by the end of third-quarter 2010.

In the liquids-rich Granite Wash play, Chesapeake is the largest leasehold owner and producer and the most active driller with approximately 200,000 net acres, an increase of 5,000 net acres from first-quarter 2010, in the Anadarko Basin. Chesapeake estimates it has approximately 200 million barrels of oil equivalent (1.2 trillion cubic feet equivalent) of proved reserves and 900 million BOE (5.4 trillion cubic feet equivalent) of risked unproved resources on its Granite Wash leasehold.

In the Permian Basin, Chesapeake holds approximately 290,000 net acres of leasehold in four unconventional liquids plays comprising the Avalon shale, Bone Spring, Wolfcamp and Spraberry in West Texas and in southern New Mexico. In the Anadarko Basin, the company holds 730,000 net acres in unconventional liquids plays, an increase of 65,000 net acres from first-quarter 2010.

In the Rockies, Chesapeake holds approximately 470,000 net acres in the horizontal Niobrara and Frontier plays in the Powder River Basin in Wyoming. The company recently entered the Niobrara play in northern Colorado and southern Wyoming with the acquisition of 205,000 net acres. Chesapeake expects to initiate joint-venture discussions in the Niobrara play in the 2010 second half.

In the Marcellus shale, Chesapeake holds approximately 1.55 million net acres, an increase of approximately 50,000 net acres from first-quarter 2010 and is the second-largest producer and most active driller in the play.

In the Haynesville and Bossier shales in northwestern Louisiana and East Texas, Chesapeake is the largest producer and most active driller of new wells in the play and owns approximately 530,000 net acres, of which approximately 195,000 net acres is prospective for the Bossier shale.

In the North Texas Barnett shale, Chesapeake is the largest leasehold owner in the core and tier 1 sweet spots in Tarrant and Johnson counties. The company holds a total of 220,000 net acres of leasehold. Additionally, Chesapeake holds 465,000 net acres in the Fayetteville shale.