Chesapeake touts Turner as key to oil growth

Chesapeake Energy is ramping up drilling in Wyoming's Turner formation as the company targets increasing oil as a portion of its total production.

The company just added a fourth drilling rig to its fleet in the Turner, which is in the larger Powder River basin, and could add a fifth rig later this year.

The Turner formation will play "a key role in our future oil production growth," Doug Lawler, Chesapeake's chief executive, said today during a conference call to discuss the company's first quarter earnings.

Chesapeake is aiming for oil to become a larger part of its total output as the year progresses. It drilled its first well in the Turner more than a year ago. Chesapeake and other US independents that pioneered the production of gas from shale formations are turning to oil development to capture higher profits.

First quarter output was 554,000 b/d of oil equivalent (boe/d), up by 11pc from a year earlier after adjusting for asset sales. The adjusted figures showed a 16pc year-over-year increase in oil output.

The unadjusted figures show production increased by about 5pc. Gas output was 2.46 Bcf/d (70mn m³/d), up by 5pc from a year earlier and representing 74pc of total production. Oil output was flat year over year.

The company projects that its production will hit a low point for the year during the second quarter thanks in part to the sale of some midcontinent properties. Earlier this year, Chesapeake reached three agreements to sell assets in central and western Oklahoma for a total of $500mn.

"From this point forward, we forecast a modest decline in gas volumes replaced in total with oil volume growth," Nick Dell'Osso, Chesapeake's chief financial officer, said today.

Chesapeake will also pursue more asset sales this year to pay down its debt. The company has been whittling down assets to shore up its balance sheet, while concentrating on its most lucrative drilling opportunities.