With a new pipeline operating in Ohio and better seasonal prices for natural-gas liquids, such as propane, Chesapeake Energy is no longer holding back Utica Shale production.
“That asset hit production records last week and continues to hit it out of the park,” said M. Christopher Doyle, the executive vice president responsible for the company’s Utica operations, during a conference call Wednesday.
Chesapeake has drilled 679 Utica wells in Ohio, the most of any company. It has a strong presence in Carroll, Harrison and Columbiana counties.
The company voluntarily cut Utica production by 15 percent — 20,000 net barrels of oil equivalent per day — in the third quarter because of weak oil and natural gas prices. It ended the quarter producing 106,000 barrels of oil equivalent per day.
But Chesapeake expects to connect soon to Spectra Energy’s OPEN regional pipeline. That will allow Chesapeake to move an additional 350 million cubic feet of natural gas per day out of the Utica and sell it for higher prices.
Doyle said the company monitors prices daily and will make production decisions accordingly. Chesapeake is still curtailing Marcellus production.
Chesapeake’s break even point in the Utica is $2.50 per thousand cubic feet for dry gas and a few cents higher for wet gas. The NYMEX benchmark Wednesday was at $2.30 per thousand cubic feet.
Chesapeake is drilling longer and more expensive Utica wells this year. Average well costs are $7.7 million with an average lateral length of 7,900 feet and 40 frack stages. The average well in 2014 cost $7.2 million and had a lateral length of 6,200 feet and 29 frack stages.
During the third quarter Chesapeake drilled a Utica well with a record lateral length of 12,976 feet. The company averaged two rigs in the play and expects to keep that number through the end of the year. A rig can drill a new well in just under 10 days.
Company-wide, third quarter production averaged 667,000 barrels of oil equivalent per day. It comprised 114,100 barrels of oil, 2.9 billion cubic feet of natural gas and 76,200 barrels of natural gas liquids.
The quarter was tough financially for the Oklahoma City-based driller and ended with the company laying off 740 employees, about 15 percent of its workforce. The company also has been dogged by lawsuits over royalty payments in several states, most recently in Ohio.
Chesapeake’s revenue was $2.9 billion, half of what it was during the same quarter a year ago, and ended the third quarter with a loss of $4.7 billion or $7.08 per share.
CEO Doug Lawler said the company would make meaningful cuts in capital spending next year, but didn’t give a dollar figure. Chesapeake also is wants to sell its non-core assets.
“We are not designing this business … around increasing prices,” Lawler said