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CEO of energy firm sees shale play profits in future.

With the rush to scoop up mineral rights largely complete in the natural gas-laden Fayetteville Shale Play, profitability is now in the hands of the energy companies set to increase drilling there.

In the case of Chesapeake Energy Corp. of Oklahoma City, the second-biggest player in the shale play behind Southwestern Energy Co. of Houston, it will begin 2007 with only three working rigs. But the company plans to end the year with more than 15 in use. Each rig is capable of drilling as many as 15 wells annually.

"In 2007, we plan to drill between 50 and 75 wells that will cost as much as $175 million," Aubrey McClendon, chairman and CEO of Chesapeake, told the Rotary Club of Little Rock last week. "The land and the gas are there. Now we just have to go get it and make it profitable."

Chesapeake thinks about 350,000 acres it owns will be productive, compared with nearly 850,000 acres secured by Southwestern.

McClendon said the Fayetteville Shale Play in north-central Arkansas, which once held promise to be the largest natural gas field in the country, is now believed to about 75 percent the size of the Barnett Shale Play and about 75 percent as productive. The Barnett Shale near Fort Worth, Texas, is the largest unconventional reserve of natural gas in the country and produces as much as 4 percent of the country's daily output of gas.

Still, McClendon said, north-central Arkansas could see as many as 30,000 wells, about $75 billion invested and between $150 billion and $500 billion worth of natural gas produced.

Questioned about Arkansas lawmakers who want to raise severance taxes to ensure the state capitalizes on the natural gas boom, McClendon said that taxing energy companies more would immediately compound the problem of finding ways to make the Fayetteville Shale Play profitable. Waiting until the money begins flowing, he said, would be in the best interest of everyone.

"We are not making money in this play, but we hope to down the road," McClendon said. "To me that's an argument or debate that should occur once this play is more mature and costs have come down and the resource base has grown. I would encourage those of you in that discussion to try and hold your fire a little bit and let us get this play up and running and profitable, and then I think the industry would be happy to sit down and talk about the appropriate level of taxation."
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Title Annotation:ENERGY
Author:Hinkel, Nate
Publication:Arkansas Business
Date:Dec 18, 2006
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