Chesapeake Energy Signs Deals To Lower Natural Gas Production Costs

Sep 15, 2015

Former Fayetteville Shale producer Chesapeake Energy Corp. has finalized two new gas gathering agreements with Tulsa-based Williams Companies for its production in the Haynesville Shale and its dry gas operations in the Utica Shale located in eastern Ohio.

“Chesapeake’s operating efficiencies across the entire portfolio over the last two years have resulted in lower costs, higher production rates and higher recovery rates. Our improved performance in the Haynesville is the primary reason that we were able to negotiate new gathering rates,” said Chesapeake CEO Doug Lawler. “These agreements will result in lower gathering rates and lower differentials, making these assets even more competitive within our portfolio.”

Lawler also said in the current deal its fellow Oklahoma energy partner will benefit both parties.

“In this capital constrained environment, we will benefit from these higher-return assets and expect to allocate incremental capital to these areas, while enabling Williams to more fully utilize its gathering systems,” said the Chesapeake CEO. “The commercial solution these new contracts provide will only enhance what we have already achieved with our operating performance. This is truly a win-win for both companies, and we continue to work with Williams to further enhance the value of our respective assets.”

In the Haynesville Shale, which extends from northwest Louisiana all the way through southern Arkansas, Chesapeake said it will move to a fixed-fee agreement beginning in January 2016. Gas gathering fees in the Haynesville will be reduced on a unit basis, and the existing minimum volume obligations are expected to be met with the consolidation of two gathering systems and a projected increase in Haynesville area volumes. As a result, the company’s gas production is expected to see improved gathering rates of nearly $0.20 per thousand cubic feet (mcf) in 2016 and 2017 and approximately $0.30 per mcf in 2018 and beyond.

Chesapeake said it is also committed to bringing 140 new wells online before the end of 2017, which will significantly improve production growth in the shale play over the next two years, and also grow Williams’ revenue in the region.

Chesapeake will also move to a similar fixed-fee agreement in the dry gas Utica Shale, beginning in January 2016, the company said, and is expected to see an estimated gathering rate reduction of nearly $0.25 per million British Thermal units (mmBtu).

Chesapeake said it is dedicating an additional 50,000 net acres to Williams and will be subject to a new minimum volume commitment of 250 mmBtu per day beginning in mid-2017. The company expects to meet this commitment with nearly one rig per year.