Chesapeake Energy Corp. announced it struck a deal with Williams Cos. to change the payment structure for gas moved across the growing production areas of eastern Ohio's Utica shale, and the two companies also announced a consolidation of two contracts for the Haynesville shale in northwestern Louisiana.
The contract changes are intended to optimize production opportunities, streamline fee structures, and restructure commitments to incentivize long-term development of the fields. The agreements with Chesapeake were entered into by subsidiaries of Williams Partners LP, of which Williams own 60%.
"This demonstrates our commitment to working with Chesapeake to align our interests on mutual growth," said Alan Armstrong, Williams chief executive officer. "These new fee structures are designed to promote production in the best locations across a wider footprint in these great basins, which improves the economics on both the drilling and midstream side."
In the Utica, Williams and Chesapeake executed a long-term, fee-based contract in the dry gas zone where many independent operators are targeting development and production growth.
The agreement extended the length of the Chesapeake acreage dedication to 2035, increased the area of dedication to 190,000 net acres from 140,000 acres in an area adjacent to Williams' existing assets, and converted a cost-of-service mechanism to a fixed-fee structure with minimum volume commitments (MVCs).
This change to a fixed-fee contract enhanced Williams' ability to gather third-party volumes and build scale in Utica's dry gas areas, said Williams, which expects investment of more than $600 million over 5 years to install more than 200 miles of pipeline and related infrastructure.
Two Haynesville contracts consolidated into one
Williams and Chesapeake also executed a new Haynesville contract that consolidated the Springridge and Mansfield contracts into a single agreement with a fixed-fee structure and a contract term to 2035.
The consolidated contract is supported by MVCs and a drilling commitment to turn 140 equivalent wells on stream before Dec. 31, 2017.
This is forecast to prompt significant production growth in the Haynesville Shale asset over the next 2 years.
The combined contract better aligns producer-midstream interests, simplifies contract administration, optimizes development across both the Springridge and Mansfield areas, and extends the Springridge dedication 15 years to 2035, Williams said.