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Shale Experts on Chesapeake's Slimmed Down Spending Plan

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Chesapeake Energy Corp. has unveiled its 2014 capital spending plans. As predicted by Shale Experts in December, the company has cut down its budget substantially from past years. 

The company plans to spend between $5.2 and $5.6 billion in 2014, down 20% from 2013 spending levels and down even further than previous years. Approximately $5.1 to $5.3 billion is allocated as operating cash flow.

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Rigs & Production

Chesapeake will operate between 55 and 65 rigs during the year. Rig distribution is as follows:

• 41-48 liquids-focused rigs
• 14-17 natural gas-focused rigs

The company expects its 2014 daily production rate to fall between 680-695 MBOE.

Capital Spending by Play

Chesapeake plans to spread out its capital budget across a wide variety of U.S. shale plays, with the bulk of the budget (35%) being allocated to the Eagle Ford Shale. The Eagle Ford spending is only slightly down from 2013 levels (1%). Most of the budget cuts were pulled from its other areas of operation, most notably the Greater Anadarko Basin.

Below is a breakout of Chesapeake's spending differences between 2013 and 2014. The Haynesville and Utica shale plays were the only two that were awarded a larger percentage of funds. The remaining plays are seeing cuts in funding.

2013 vs. 2014 Spending

Source : Shale Experts CapEx Database, Chesapeake Energy Presentations

Eagle Ford Shale

Eagle Ford Shale 2014 Spending (approx.): $1.785-1.855 billion

Chesapeake's focus in the Eagle Ford for 2014 will continue to be decreasing well costs (which is currently estimated at $6.4 million/well for 2014). Pad drilling is being utilized on 95% of the company's wells, up substantially from 59% in 2013 and only 35% in 2012.

The company will operate 15-18 rigs throughout the year.

Utica Shale

Utica Shale 2014 Spending (approx.): $765-795 million

For 2014, Chesapeake's goal in the Utica Shale is to double its year-end production rate (target of 800 MMcf/d compared with 2013's exit rate of 400 MMcf/d).

This goal will be aided by the company's improved spud-to-rig release timeline, which has declined from 24 days (2011) to 15 days at year-end 2013. Chesapeake is looking to shave off an additional two days off that time this year.

Chesapeake plans to operate 7 to 9 rigs in the Utica for 2014.

Marcellus North

Marcellus North 2014 Spending (approx.): $510-530 million

At its Marcellus North prospect, Chesapeake is looking to ramp up its pad drilling percentage to 98% by year-end 2014 (from 78% in 2013). Between 6 and 7 operated rigs will be active during 2014.

Haynesville Shale

Haynesville Spending 2014 (approx.): $510-530 million

In the Haynesville Shale, Chesapeake currently has 570,000 gross acres delineated and touts a well inventory of 4,500 (80-acre spacing).

Well cost for the company has not decreased much in recent years ($10.3 million for 2010-2012; $9.4 million for 2013). This year, Chesapeake is targeting well costs between $7.9 and $8.3 million.

Other Plays

Chesapeake has budgeted a portion of its CapEx to a number of other plays as well, but has not gone into much detail about well costs, production expectations, rigs, etc.

Other play spending (approx.):

• MidContinent (includes Mississippi Lime, Cleveland, Tonkawa, Granite Wash and other Anadarko plays): $1.02-1.06 billion
• Niobrara Shale: $255-265 million
• Marcellus South: $255-265 million
• Barnett Shale: $255-265 million