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.
Views: 77
Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant on
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William, as to having a pipeline infrastructure ...., You bet! Production without connection to market is not something that shareholders appreciate. Capital expenditures without a direct connection to increased cash flow is not a way to increase stock valuation. And that is under close scrutiny in the market at present. All the producers in this market are under the gun to drill, produce and sell. That's the main reason that there has been a pause in aggressive leasehold acquisition.
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Permalink Reply by Bill G on -
Chesapeake Energy Corp.(NYSE: CHK)
NEW Real-time: 17.53 4.05 (18.77%) 12:52PM EThelp
Last Trade: 17.16
Trade Time: 12:31PM ET
Change: 4.42 (20.48%)
Prev Close: 21.58
Open: 20.58
Bid: N/A
Ask: N/A
1y Target Est: 65.45
Day's Range: 16.40 - 20.58
52wk Range: 11.99 - 74.00
Volume: 37,750,720
Avg Vol (3m): 25,584,000
Market Cap: 9.94B
P/E (ttm): N/A
EPS (ttm): -2.672
Div & Yield: 0.30 (1.50%)
CHK is taking Punishment once again on wall street today...with multible negative announcments on the headline releases!
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Permalink Reply by steveb on
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Does anyone have up to date info on current Haynesville Shale take-away capacity as well as all pipeline projects in the works?
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Permalink Reply by Duncan McGehee on
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Pipelines are pretty much full. More pipelines probably will not help as there is a glut of natural gas and companies are getting as little as $3.50 an mcf.
Check the EIA on Thurdays, after 9:30 to see how much is in storage.
Petro Hawk just reported 3 wells hooked up with initial production of over 20 mmcf per well. It will probably be produced in the 7 to 8 mmcf a day range. Depending on the EIA numbers they may shut these in until there is a place to put the gas. To me this means they will not drill a $10 million dollar well just to shut it in.
This is not good news for landowner or landman.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Hey, Earl. Only a portion of CHK's production in hedged in those years. I don't remember the exact figures but I believe it is less than 35%. The real challenge will be negotiating the next round of production hedges. If ng prices don't begin to rebound soon, it will be tough. No euphoria - no doom and gloom. Maybe one of the members has the exact numbers. I'll look when I get the chance.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Earl. Your old friends at CHK have been out hedgin' up a storm. Their latest production hedges follow. They have been busy little buggers since I last checked. And their hedge positions have improved.
71% of 4Q’08, 74% of 2009 and 48% of 2010 production hedged at average prices of $9.00, $8.48
and $9.81 per mcfe, respectively
Not bad, huh?
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Permalink Reply by Snake Stewart on
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Looking through RSP all day long can skew the view, if you know what I mean. Kinda changes the dynamics of the economics of this thing. At least temporarily. Thanks for the "RSP free" view.
Snake, staren' at life through rose coloredglasses, panties! -
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The contract prices paid is around $3.50 even though the spot price is in the $5 range.
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Permalink Reply by Les Bamburg on
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Duncan, contract prices for NW La should be ~ $6.20 per MMBtu for December production.
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Permalink Reply by Les Bamburg on
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Duncan, actually there is about 500 MMcfd of unused pipeline capacity available for additional NLa production. December gas prices are still good with Perryville region priced at ~ $6.85 per MMBtu which should equate to NWLa prices of ~ $6.20 per MMBtu. No producer has decided to shut-in Louisiana gas production and all major palyers have confirmed their intent to continue drilling plans for the Haynesville Shale.
On the other hand, Rockies gas production is selling for $4.74 per MMBtu and will be impacted by the reduction in active drilling rigs.
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Permalink Reply by Les Bamburg on
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KB, actually Rockies gas prices have improved 64% or almost $2 per MMBtu from last month although still lower than Gulf Coast prices.
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Permalink Reply by intrepid on
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Sounds like good business practices to me. Maybe time to buy some stock before it takes a jump.
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