Chesapeake Adding Natural Gas and Alternatives to Power Rigs

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Chesapeake Energy

Source: Chesapeake Energy

Chesapeake Energy (NYSE:CHK) is looking for alternative sources of power for its operations in remote areas to keep a check on its rising fuel costs. [1] Chesapeake Energy has grown to become one of the largest producers of natural gas and the most active driller of new wells in the US. The company’s operations are focused on discovering and developing unconventional natural gas and oil fields onshore in the U.S. The company directly competes with energy majors like Exxon Mobil (NYSE:XOM), Conoco Phillips (NYSE:COP) and Anadarko (NYSE:APC).

Our $35.50 price estimate for Chesapeake Energy’s stock is roughly at a 20% premium over the market price.

Oil and gas producers are frequently hounded by the unavailability of electricity at remote locations not covered by the nation’s power grid. Consequently, most of their drilling rigs are powered by diesel as access to electricity is expensive and at times impossible. In fact, the cost of extending the grid to oil rigs may reach $100,000 per mile. [1]

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Chesapeake is looking at natural gas as a potential energy source to fuel its rigs due to the cost benefits and the environment friendly nature of the fuel. There have been issues with using alternative  power sources like wind and solar as they constantly need a battery backup as these sources are not available all the time.

In one of its projects, Chesapeake employees have found an innovative method to significantly increase the life of the standard lead-acid batteries, thereby complementing the company’s focus on new ways to harness electricity. This project, near Kingfisher, gets about 60% of its energy from a wind turbine and harnesses the rest of its energy from the pump jack itself. [1]

The company officials are pleased with the performance of the project so far and such projects could well find their way into other installations with time. As these innovative new methods help reduce costs, the company will likely see lower operating expenses in the years to come – pushing margins upwards.

See our complete analysis of Chesapeake

 

Notes:
  1. Chesapeake looking for alternative power options, NewsOK [] [] []