Release Date: 06/11/2008

Chesapeake Increases Drilling

The Wall Street Journal, June 22, 2008 by Mike Barris

Chesapeake Energy Corp. is ramping up drilling in Louisiana's Haynesville Shale natural gas field after completing two new wells, and with expectations of completing two more by the end of the month.

The company, whose extensive use of expensive horizontal drilling is being offset by soaring gas prices, anticipates operation at least 12 rigs in the hot new drilling area by year end and at least 30 rigs by the endo of 2009, it said.  It operates five rigs in the area now.

"It seems oike they're having very good success," said David Pursell, managing director at Tudor, Pickering, Holt & Co., an energy-focused investment bank.

Chesapeak's stock has soared more than 60% in the past year and is trading at nearly A$59 a share.  the increase continues a comeback by an oil and gas company that was b adly hit a decade ago when petroleum prices, and its stock price, plunged, leading it to put itself up for sale.  There were no takers.

Chesapeak, one of the national's largest producers of natural gas, said the new HJaynesville wells have flow rates comparable with the four it has built since startiang to drill there nearly two years ago.

The Oklahoma City company, which is believed to be the largest leasehold in Haynesville, will accelerate itys drilling activity to "generate substatial production growth and capture outstanding financial returns available in the current attractive natural gas price environment" Chief Executive Aubrey K. McClendon.

Chesapeak'e upbeat view is good news for a number of companies that also have acreage in Haynesville.  Besides Chesapeake,  the major players are EnCana Corp, Devon Energy Corp. and Anadarko Petroleum Corp.  The small-cap beneficiaries are Petrohawk Energy corp., Exco Resources, Inc., Goodrich Petroleum Corp., GMX Resources, Inc. Penn Virginia Corp., and Cabot Oil & Gas Corp.

Chesapeake  is extracting gas from shale through horizontal drilling, an expensive process in which a well is drilled straight down and then out laterally through the gas zone.  Such wells can reach two miles down into the ground, then as far as three-quarters of a mile laterally.  With its larger output per well, the method is considered more lucrative than conventional drilling.

Chesapeake, which has reserves of 7.5 trillion cubic fee of natural gas equivalent, is one of four major developers of Texas' Barnett Shale field, which some experts consider the largest onshore natural gas field in the U.S.

Chesapeake used Barnett as a model and training ground for its activities in Haynesville.