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Tickers in this Article: CHK, DRX, EAC, DNR, URX
Investors that are interested in where the exploration and production industry may look next for future growth in oil and natural gas reserves and production should take a peek at Chesapeake Energy's (NYSE:CHK) analyst day presentation held in September 2009.

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Take A Peek
The company is on the cutting edge of exploration and development and has built sizable positions in virtually all the major shale plays in North America. Chesapeake Energy had a section in its investment presentation entitled "other plays."

The company is currently testing 29 formations in 12 states. These are still being evaluated, and only five have been written off as non-commercial or unsuccessful.

Chesapeake Energy doesn't give out a lot of information on these evaluations due to competitive reasons, but one that is in the advanced stage is the Cleveland Sand. The Cleveland Sand is located across the Texas and Oklahoma Panhandle, and is 2.5 million acres in size. The play is low permeable sand that is drilled horizontally and needs some type of fracturing to make the wells commercial.

These wells are smaller than investors are used to in other plays. The average reserves that Chesapeake Energy is using are 135,000 barrels oil equivalent (BOE) and 2.1 billion cubic feet (Bcf) of natural gas, but since the cost is only $3.3 million per well, the economics work for the company. Another advantage for Chesapeake Energy in this play is that it brings more oil into its production stream.

Combining Forces
Another company in the Cleveland Sand is Chaparral Energy. The company has 6600 net acres under lease, and has 31 producing wells. Chaparral Energy also uses horizontal drilling on its acreage. Chaparral Energy is a private company but is being acquired by United Refining Energy Corp (AMEX:URX) in a deal worth $1.6 billion.

Encore Acquisition Company (NYSE:EAC) also has acreage prospective for the Cleveland Sand. The company is only running one rig in the play in 2009, as it finds its acreage in other areas to be more attractive. Denbury Resources (NYSE:DNR) is acquiring Encore Acquisition Company in a combination of cash and stock. Both companies are leaders in tertiary recovery in mature oil fields using CO2 flooding.

Another area that Chesapeake Energy is developing is a Mississippian age formation in Oklahoma. The company has seen production here move higher in 2009, and it now has 12 producing wells and 200 future locations. These wells are even cheaper than Cleveland Sand wells, at $2.75 million each.

The Bottom Line
Chesapeake Energy is not resting on its laurels as its technical teams are lining up future locations to power the growth that investors have come to expect from this first mover exploration and production company. (To learn more, check out our Oil And Gas Industry Primer.)

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