Chesapeake To Cut Production And Spending Through 2010
NEW YORK -(Dow Jones)- Chesapeake Energy Corp. (CHK) will cut production levels and spending as the natural-gas producer tries to deal with falling gas prices and fears of a glut in the next few years.
The largest producer of U.S. natural gas is cutting its planned budget for drilling by 17%, resulting in about $3.2 billion less spending from now through 2010. Chesapeake cited a 50% decline in the price of natural gas since June 30 and the fear of a surplus of gas from the declining demand in the U.S. markets. The cuts include the elimination of 17 of 157 rigs, and the company will look to keep that number steady through 2010.
Chesapeake also lowered its 2008 production growth estimates to 18% from 21% because of the production slowdown. For 2009 and 2010, the company now expects production to grow by 16% per year, down from the earlier estimate of 19% per year.
But the cuts will also leave the company with $2 billion in excess cash that it will use to reduce its current debt.
The reductions in production come after a summer which saw Chesapeake sign two joint ventures with BP PLC (BP) and acquire more land and resources. The company said it is still working on completing another joint venture by the end of the year.
Chesapeake also said it is looking to generate $1 billion by selling its stake in midstream natural gas business.
The largest producer of U.S. natural gas is cutting its planned budget for drilling by 17%, resulting in about $3.2 billion less spending from now through 2010. Chesapeake cited a 50% decline in the price of natural gas since June 30 and the fear of a surplus of gas from the declining demand in the U.S. markets. The cuts include the elimination of 17 of 157 rigs, and the company will look to keep that number steady through 2010.
Chesapeake also lowered its 2008 production growth estimates to 18% from 21% because of the production slowdown. For 2009 and 2010, the company now expects production to grow by 16% per year, down from the earlier estimate of 19% per year.
But the cuts will also leave the company with $2 billion in excess cash that it will use to reduce its current debt.
The reductions in production come after a summer which saw Chesapeake sign two joint ventures with BP PLC (BP) and acquire more land and resources. The company said it is still working on completing another joint venture by the end of the year.
Chesapeake also said it is looking to generate $1 billion by selling its stake in midstream natural gas business.
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Replies to This Discussion
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Permalink Reply by Iris on -
I think I'll rename myself Bozo, I try to skim thru & interpret the posts, plain talk the leasing & bonus bubble has seemed to burst for now, I wouldn't have expected anything different -- it may come back to some extent later, if anyone could accurately predict the stock market w/o insider trading we wouldn't even have a stock market.... I do appreciate all the interpretations.
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Permalink Reply by BirdDawg, plain ole' idiot on
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KB,
CHK is dealing on large HPB tracts as we speak. You probably already know.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Jim, I do not think you are missing "anything". I think your assessment is more than plausible. It may not be what some want to hear but it should not be discounted as a subterfuge.
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Skip, dang I wish I knew some of those big words. But I think you are right on the mark.
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Jim,
Amen brother
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Jim, you say it much better than me, but that is what i'm trying to say. I wish it was not true, but I know that lease prices will never be as high as what we have seen. They can drill their 8 wells to the unit in their areas and make all of the gas they need for quite a while. But as someone else said, other players may come into the game. I just don't think there will be the huge lease bonuses.
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Permalink Reply by Grice on
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Mr.McConnell, with all due respect, I believe too many people are in a panic of the latest news release. Sure, if you only take that story as being the only factor, then maybe there would be some validity to the panic. But, I believe there are other things to consider.
When news of the government plan to bail out the financial market, stocks immediately began to rise. But, as leaches began to attach themselves to the proposed plan, and others demanded "clarification" of the proposal, the market quickly fell again. This fast fluctuation has created many skeptics. The O&G companies, which rely on banking support, are unsure if they will be able to retain the lending practices they have come accustomed to in the past. And the financial institutions are being very cautious about future lending.
I believe the latest Chesapeake news release, is directly related to the problems that have risen with the proposed governmental "bailout" of the financial market. When, or if, the problems with the bailout is resolved, things will swing back into shape. There is already a meeting scheduled for tomorrow, so maybe some of those problems can be resolved soon.
However, I do think it will take several months before the confidence is regained. I would not expect a full return to happen until at least the middle of next year. This may not be the end, but merely a pause while we wait to see if the industry (both O&G and Lending) is able to stabilize.
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Permalink Reply by Grice on
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Chesapeake is scheduled to hold an operational and financial update tomorrow morning. Should be an interesting.
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Permalink Reply by Jack Blake on
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My crystal ball says leasing will pick back up at just as high of pricesper acre...............until they hit the first dry hole.
I signed with Chesapeake and studied the company a lot. One reason I did not hold out was becuase it appeared to me the CEO was trying to sell the HS to investors. I was afraid if I thought he was selling the validity of the HS to investors and I percieved him as a snake oil salesman then investors would pick up the same vibe from him.
But it didn't make sense to me why he would pay such prices if the leases were not worth that much.............
Damn, the stock market is crashing.............I hope the bank that's holding my HS cash does not go under as well!!!!!!!!!!!!1
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Permalink Reply by sesport on
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Mr. Buckner - could you please repost that link, it didn't work. Or else they did take it down. Thanks!
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Permalink Reply by Skip Peel - Mineral Consultant on
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William, can't get the link to work by clicking or cutting/pasting. Could you check it and repost the link? Thanks.
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