Summary
Chesapeake plans to become one of the top five oil and natural gas liquids companies by 2015 according to an announcement by CEO Aubrey McClendon. In a conference with analysts, McClendon said that the company would be running 150,000 bbl/day by year-end 2012 and 250,000 bbl/day by 2015. Capital spending for natural gas will be reduced from 90% in 2009 to 35% by 2012. If natural prices recover, this could be revised. Chesapeake facing a "rough" 2011, will continue seeking joint ventures in 2011
Analysis
The above is an extract from a Dow Jones Newswires article by Angel Gonzales reported by the Rigzone Newsletter on November 4. As natural gas prices began what now appears to be a secular decline in the U.S., as frequently reported by the trade journals a "rush to liquids" trend has developed among nearly all of the unconventional natural gas producers. A primary reason for this is that most of these companies are highly leveraged and face bond redemptions over the course of the next several years. While natural gas prices held reasonably steady above the $5/million btu in early 2010, gas in the ground could be sold forward for delivery in 2011 and future years at prices in the $7-8/million range. Shale gas companies were doing this left and right with the result that their balance sheets were OK and would stay OK as long as the hedging continued. But with prices in the $3.80-4.00/million range, much of today's shale gas is marginal or even uneconomic. Futures prices will follow the downswing which means hedging could quickly become a losing proposition. Thus Chesapeake and others have been out beating the bushes looking for foreign joint venturers to buy portions of their huge shale gas acreage positions. So far this has been a successful strategy. Shell, Total, Statoil, Reliance (India) and now CNOOC have jumped at the chance to enter the various plays with Marcellus, Woodford, Haynesville and Eagle Ford prominently featured. Motivation for the foreign companies has been to earn profits in the U.S. and equally important, gain operating experience to use in shale gas exploration and development in Europe and Asia. A paradox exists because the international majors are going after shale gas, Coalbed methane and especially LNG with hardly a second thought about low U.S. natural gas prices. The majors realize that natural gas will be the fuel of the 21st Century and probably the 22nd too. Inasmuch as they have access to markets in Europe and Asia where prices are considerably higher (often because of a linkage with crude oil prices), they see no reason for a go slow
Buck
