Chesapeake Energy Corporation this week reported natural gas well production from Marcellus Shale formations in Pennsylvania, New York and West Virginia during the third quarter of 2009 increased 338 percent over the third quarter in 2008.

Chesapeake is currently producing a company record monthly average of approximately 50 million cubic feet (mmcfe) net per day (100 mmcfe gross operated) from the Marcellus and anticipates reaching approximately 90 mmcfe net per day (180 mmcfe gross operated) by year-end 2009, approximately 220 mmcfe net per day (440 mmcfe gross operated) by year-end 2010 and approximately 390 mmcfe net per day (780 mmcfe gross operated) by year-end 2011.

To further develop its 1.5 million net acres of Marcellus leasehold, Chesapeake is currently drilling with 20 operated rigs and anticipates operating an average of approximately 28 rigs in 2010 to drill approximately 170 net wells.

During the first three quarters of 2009, approximately $85 million of Chesapeake’s drilling costs in the Marcellus were paid for by STO. During the 2009 fourth quarter through 2012, 75 percent of Chesapeake’s drilling costs in the Marcellus will be paid for by STO, or approximately $2.0 billion over the next three years.

Since January 1, 2008, Chesapeake has drilled and completed 40 company-operated horizontal wells in the Marcellus. Assuming flat NYMEX natural gas prices of $7.00 per mcf (compared to a recent 10-year NYMEX strip price of approximately $7.25 per mcf), the company’s estimated pre-tax rate of return from a 4.2 bcfe horizontal Marcellus well drilled for $4.5 million is approximately 66 percent excluding the benefit of drilling carries and more than 1,000 percent including the benefit of drilling carries.

The STO drilling carries should result in Chesapeake delivering lower finding costs, higher returns on invested capital and higher production growth levels than other companies can deliver from the Marcellus.

In addition, Chesapeake’s leasehold investment in the Marcellus to date has been approximately $1.5 billion, of which $1.25 billion, or 83 percent, has been recouped to date by selling a 32.5 percent interest in the company’s leasehold to STO. The company’s net investment in its Marcellus leasehold is now about $165 per net acre on average.

Two notable recent wells completed by Chesapeake in the Marcellus: the Clapper 2H in Susquehanna County, Pa achieved a peak rate of 10.1 mmcf per day; and the Otten 2H in Bradford County, Pa achieved a peak rate of 8.9 mmcf per day.

A copy of the complete announcement is available online.