Aubry McClendon: OKC soon to be world's natural gas capital

Journal Record, The (Oklahoma City), Apr 15, 2008 by Kirby Lee Davis

Aubrey McClendon smiled as he sat down with reporters in the warm glow of a silent brick fireplace.

"Ah, what I really love to see," said the chairman and chief executive of Chesapeake Energy. "A natural gas fire."

McClendon bubbled with enthusiasm over the future of natural gas in presenting the Inaugural Chesapeake Energy Lecture Monday at the University of Tulsa Allen Chapman Activity Center. In the city that once laid claim to the oil capital of the world, McClendon said Oklahoma City could now argue its merit as the world's natural gas capital.

His growing Oklahoma City company - provider of a five-year, $500,000 scholarship and energy management training program at TU to encourage more energy industry careers - stands as the nation's third-largest producer, with 10.9 trillion cubic feet of proven reserves. This year Chesapeake expects to take the top position, with Oklahoma City's Devon Energy possibly ranked second.

"I've been doing this for 27 years," he said, "and never have I been more excited about the potentials that exist."

His enthusiasm spins from a dynamic change in the economics of natural gas supplies over the last three to four years. McClendon said the discovery of how to effectively and efficiently free the fossil fuel from shale deposits could change our nation's economic and energy strategies.

As the most active driller, with 92 percent of its wells targeting natural gas, Chesapeake has played a major role in developing natural gas supplies in the U.S. and Canada.

Last month that potential surged as Chesapeake Energy estimated its new Louisiana natural gas discovery could rise to 20 trillion cubic feet equivalent of natural gas.

"That could rival the Barnett Shale in size," McClendon said of the Haynesville Shale area in northern Louisiana.

The Barnett Shale development in north Texas, where Chesapeake is heavily involved, now produces 5 percent of the nation's natural gas. McClendon estimated it could hit 10 percent within a few years. That production should provide the city of Fort Worth about $1 billion over the next 20 years for development of parks, lakes and other improvements.

Chesapeake now has interests in more than 200,000 acres in the Haynesville Shale, promising 7.5 tcfe. It hopes to raise that to more than 500,000 this year, promising reserves of 20 tcfe.

That's because their ability to "crack the code" in removing natural gas from shale also contains development costs, promising improved profitability.

"I'm kind of excited about flat finding costs for years and years," he said, projecting Chesapeake's shale activity could rise to 80 percent of its drilling from 60 percent now.

McClendon said the nation can now count on a 5-percent annual supply increases for the immediate future. That would not only negate forecast needs for increasing liquid natural gas imports, but provide enough surplus to begin serious commercial applications for our nation's transportation sector.

With that potential developed and harnessed, the natural gas industry advocate said those increased supplies would allow the nation to dramatically lower oil imports, and right a $600-billion trade imbalance caused by soaring oil costs, while averting rising protests by impoverished nations over diverting edible grains into fuel.

"What do we do about the cost of food?" McClendon posed to the audience, pointing to rising prices spurred by ethanol requirements. Suggesting the amount of corn used in filling a gas tank could feed an overseas family of four for a year, he said, "We think natural gas is the answer."

Encouraging more use of natural gas fuels also would answer many environmentalist calls to reduce motorist pollution, McClendon said, and keep most of those fuel dollars at home, meeting our national security interests.

While he acknowledged the transportation industry lacked the infrastructure for natural gas fueling stations, he suggested most home and business owners could easily install systems to fill vehicle tanks from their existing NG supplies. Owners of hybrid vehicles also could tap NG to fuel home generators.

McClendon said the larger problem comes from installing natural gas kits in existing vehicles while encouraging automakers to install NG fuel options.

"We have talked to Detroit about this," he said.