Q&A: Chesapeake CEO: Eagle Ford output fully back
Oklahoma City, 25 September (Argus) — US independent producer Chesapeake Energy has fully restored output shut in from Hurricane Harvey in Texas' Eagle Ford basin, chief executive Doug Lawler said. He also spoke with Argus Media on investor concerns surrounding the shale industry's gas-to-oil ratio, the rig count outlook, the company's debt reduction and asset sales.
As much as 20pc of your Eagle Ford production was shut in from Hurricane Harvey. Where does it stand now?
We have been very pleased with the response to the significant impact Harvey had. We have not publicly disclosed what the impact to our production has been, principally because the impact was not just on current producing wells but it was also pipelines, logistics, service personnel and all of that impacted our operations down there. We are pleased everything is up and running now and we will be sharing more information about what that exact impact was here in the next few weeks.
We are fully back online now. So there was impact to oil, pipelines, there were several impacts that we had across our whole operation, not necessarily just the wells. Wells were ready to go; we just had downstream issues that had to be brought back up before we could continue to produce.
Is Chesapeake seeing a worsening gas-to-oil ratio as some shale producers are?
We have not seen a major impact. It is something that is not a new issue, but I think it is something that has recently come up and got more attention.
What happens is: in a tight reservoir, pressure depletion will result in reaching a bubble point where we are actually starting to produce gas preferential to oil at a certain point in time in the life of a well — we know that. The harder a well is pulled at a greater flowrate a greater pressure drawdown is created in the reservoir. The quicker you get to that pressure the quicker you will start seeing more gas production. Is the phenomenon impactful to a negative extent to us? I don't believe it is in our operations and it is something we have to be very mindful of, though. The oil is still present, gas is associated with the oil and how we produce the well, the pressure management, the completion design technology, how we space our wells — it all plays into it in how we ultimately flow our wells.
So I think it is something that the industry has managed for a long time, unconventional or conventional. I don't think it's an unmanageable issue that we don't fully know and understand.
Are any particular shale basins more prone to worsening GORs than others?
No, not particularly. You will see gas production, associated gas in oil reservoirs. You are going to have a percentage of gas. The more pressure you pull on that well, the more the potential for the GOR to go up. And in most oil — unless it is black oil or dead oil with no gas associated with it — most reservoirs you have associated gas.
What is your outlook for the rig count and drilling activity in the US?
I think the rig count will continue to increase. Probably what's more important though is that at one time the rig count was kind of the surrogate for coming production, and I don't believe that is necessarily true today.
The capital efficiency we are seeing, we are doing more today than ever before with a single rig. With a dollar invested, we are getting greater returns today than we have ever before. So capital efficiency has to be evaluated as well. For Chesapeake, in general, we do with one rig today what it took three or more rigs to do two or three years ago. I would encourage you not to focus as much on rig count as much on capital efficiency and how Chesapeake or other companies are continuing to improve their capital efficiency.
How is Chesapeake proceeding with its debt reduction plan in this sub-$50/bl oil environment?
We have reduced approximately 50pc of our total leverage during this low price environment, over $11bn. So even in this low price environment, we have made tremendous progress.
We have made significant progress in reducing commitments and obligations and lowering our cash cost structure. It still is a top priority for the company. We still have a legacy debt issue that we have to continue to improve. What I am excited about though is we have the resources, the people and the technology that we continue to make improvements to be more productive and more profitable for our shareholders.
How do you plan to continue to reduce your debt, going forward? Will it be more asset sales?
Asset sales will be one of the primary ways we will be looking at, and it has been. We have targeted that we are looking to further reduce our debt in the near term, by $2bn-$3bn, and that will principally be accomplished through asset sales.