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Chesapeake Energy Corp., who holds the most keys to the natural gas kingdom in Wayne County, will enter a joint venture with the European natural gas giant, StatoilHydro.
The Norwegian-based company will acquire a 32.5 percent interest in Chesapeake’s Marcellus Shale lease area, which covers 1.8 million acres in Appalachia, Pennsylvania and New York included, according to a company press release issued Tuesday.
Despite this venture, lower natural gas prices are draining incentive to move ahead with operations.
The effect on the county’s lease holders, who signed deals with Chesapeake, hoping to reap lucrative natural gas royalties, is unknown today.
“Until the acquisition closes, we’re not providing any additional color commentary,” said Jim Gipson, director of media relations with Chesapeake, by phone on Friday. “We probably would be willing to discuss more details” later.
StatoilHydro, the second largest natural gas supplier to Europe, will now own approximately 600,000 acres of Chesapeake’s total lease area, a 32.5 percent ownership interest.
Chesapeake, the largest U.S. natural gas producer, will retain ownership on its remaining 1.2 million acres.
The Marcellus Shale, a vast geologic formation stretching from West Virginia to New York, contains massive, mostly untapped, natural gas reserves.
The joint venture will cover more than 32,000 leases in Ohio, Pennsylvania, New York, and West Virginia.
Penn State University geoscientist Terry Engelder, a leading authority on the topic, has predicted that nearly 363 trillion cubic feet of natural gas could be recovered throughout the entire shale.
Wayne County is considered a “core” area of the shale, expected to produce significant quantities of natural gas once extraction begins.
Both companies believe the deal will enable them to drill 13,500 to 17,000 horizontal wells over the next 20 years.
There are more than 1,000 leases signed county-wide by Chesapeake and other industry players, including Cabot Oil and Gas Corp., a Houston-based energy company.
Today, however, there is only one natural gas well drilled in Wayne County, according to state Department of Environmental Protection records. That one was drilled by Stone Energy Corporation.
Less incentive to drill
Possible industry reluctance with converting natural gas leases to actual drilling could be due to lower natural gas prices on the energy markets, and broader national economic upheaval, said Dave Messersmith, of the Penn State Cooperative Extension office in Wayne County. (A lease is an intent to drill).
“There’s not as much incentive to produce the gas as there was in the summer” when natural gas prices where much higher, said Messersmith.
Prices then were $13 per thousand cubic feet of natural gas, where it is around $6 today, the 1999 national average, according to the federal Energy Information Administration.
“The break-even cost (for natural gas companies) is somewhere between $3 to $4 per thousand cubic feet,” he said. “These numbers aren’t encouraging for them to greatly expand.”
According to the terms of the joint venture, StatoilHydro will pay $1.2 billion in cash to Chesapeake when the acquisition closes.
StatoilHydro will also pay an additional $2.1 billion from 2009 to 2012 by funding 75 percent of Chesapeake's 67.5 percent share of drilling and completion expenditures
To earn this bounty, “Chesapeake is required to maintain a significant level of drilling activity,” according to the press release.
Also, StatoilHydro will have an investment interest in further lease acquisitions by Chesapeake.
[Editor’s note: This is part of an occasional series of articles highlighting various aspects of the natural gas bonanza in the region. If you wish to comment on the issue or how it affects you, please contact the writer at (570)253-3055.]
Chesapeake Energy Corp., who holds the most keys to the natural gas kingdom in Wayne County, will enter a joint venture with the European natural gas giant, StatoilHydro.
The Norwegian-based company will acquire a 32.5 percent interest in Chesapeake’s Marcellus Shale lease area, which covers 1.8 million acres in Appalachia, Pennsylvania and New York included, according to a company press release issued Tuesday.
Despite this venture, lower natural gas prices are draining incentive to move ahead with operations.
The effect on the county’s lease holders, who signed deals with Chesapeake, hoping to reap lucrative natural gas royalties, is unknown today.
“Until the acquisition closes, we’re not providing any additional color commentary,” said Jim Gipson, director of media relations with Chesapeake, by phone on Friday. “We probably would be willing to discuss more details” later.
StatoilHydro, the second largest natural gas supplier to Europe, will now own approximately 600,000 acres of Chesapeake’s total lease area, a 32.5 percent ownership interest.
Chesapeake, the largest U.S. natural gas producer, will retain ownership on its remaining 1.2 million acres.
The Marcellus Shale, a vast geologic formation stretching from West Virginia to New York, contains massive, mostly untapped, natural gas reserves.
The joint venture will cover more than 32,000 leases in Ohio, Pennsylvania, New York, and West Virginia.
Penn State University geoscientist Terry Engelder, a leading authority on the topic, has predicted that nearly 363 trillion cubic feet of natural gas could be recovered throughout the entire shale.
Wayne County is considered a “core” area of the shale, expected to produce significant quantities of natural gas once extraction begins.
Both companies believe the deal will enable them to drill 13,500 to 17,000 horizontal wells over the next 20 years.
There are more than 1,000 leases signed county-wide by Chesapeake and other industry players, including Cabot Oil and Gas Corp., a Houston-based energy company.
Today, however, there is only one natural gas well drilled in Wayne County, according to state Department of Environmental Protection records. That one was drilled by Stone Energy Corporation.
Less incentive to drill
Possible industry reluctance with converting natural gas leases to actual drilling could be due to lower natural gas prices on the energy markets, and broader national economic upheaval, said Dave Messersmith, of the Penn State Cooperative Extension office in Wayne County. (A lease is an intent to drill).
“There’s not as much incentive to produce the gas as there was in the summer” when natural gas prices where much higher, said Messersmith.
Prices then were $13 per thousand cubic feet of natural gas, where it is around $6 today, the 1999 national average, according to the federal Energy Information Administration.
“The break-even cost (for natural gas companies) is somewhere between $3 to $4 per thousand cubic feet,” he said. “These numbers aren’t encouraging for them to greatly expand.”
According to the terms of the joint venture, StatoilHydro will pay $1.2 billion in cash to Chesapeake when the acquisition closes.
StatoilHydro will also pay an additional $2.1 billion from 2009 to 2012 by funding 75 percent of Chesapeake's 67.5 percent share of drilling and completion expenditures
To earn this bounty, “Chesapeake is required to maintain a significant level of drilling activity,” according to the press release.
Also, StatoilHydro will have an investment interest in further lease acquisitions by Chesapeake.
[Editor’s note: This is part of an occasional series of articles highlighting various aspects of the natural gas bonanza in the region. If you wish to comment on the issue or how it affects you, please contact the writer at (570)253-3055.]
