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 Skip Peel - Mineral Consultant on
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Thanks, Grice. That's the first comprehensive time line projection on "connection to market" that I have heard of. Previous mid-stream reports seemed to indicate that completion of some major "takeaway" infrastructure would be complete in the last quarter of '08 and the first half of '09. The report seems to indicate that much more capacity will be required to keep up with anticipated production. I hope the 18 month projection is more accurate than the 36 month. And I hope the capital markets can accommodate the significant expenditures that will be required.
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Permalink Reply by Les Bamburg on
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Skip, there is 1.0 - 1.5 Bcfd of unused takeaway capacity available in completed or under construction gas pipelines. Additional long haul capacity will be required and built by end 2010 or early 2011.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Thanks, Les. Do you have any idea how much of that capacity is "under contract" and how much remains available?
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Permalink Reply by Skip Peel - Mineral Consultant on
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Jim and Les. Do you think that those operators who have "subscribed" for a guaranteed portion of the new capacity soon to come on line will be more aggressive to produce and that those who will have to wait on future capacity will delay or slow production? It would be nice to know how each of the shale players are positioned in this regard.
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Permalink Reply by Les Bamburg on
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Jim, sorry it is not really first come first served. It is the parties that have firm long term capacity contracts that control access. Others can access unused capacity on an interruptible basis.
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Permalink Reply by Les Bamburg on
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Skip, see my comment above. Companies such as Chesapeake, XTO, Encana, Devon & EOG control capacity. Some of the capacity is also held by others and may offer an opportunity for companies such as Petrohawk to gain access.
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Permalink Reply by Les Bamburg on
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Jim, the four new pipelines built (and being built) across North Louisiana were primarily under written by producers rather than marketers or consumers.
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Permalink Reply by Les Bamburg on
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Skip, the capacity is generally fully contracted but many of the parties holding the capacity are active in the Haynesville Shale. These parties will determine if they use the contracted capacity for Barnett Shale, East Texas or Haynesville Shale production.
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Permalink Reply by Skip Peel - Mineral Consultant on
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I do not wish to derail this discussion although it may be nearing its logical end but this just in. Think XTO is taking a shot at Aubrey? Their report sounds aggressive. I will post a link to it in its entirety on my next post.
With deal-making now set to take a break, XTO’s focus is on maximizing the potential of the resources acquired. It is one thing to talk about the potential and another to produce. However, given the exceptional record of the company, we believe production will respond and reserves will in fact rise considerably over the course of the next 12 to 18 months.
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Permalink Reply by Skip Peel - Mineral Consultant on
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"XTO Energy expands acreage in core shale play".
http://www.stockhouse.com/Columnists/2008/September/23/XTO-Energy-e...
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Permalink Reply by Grice on -
For anyone wanting to listen the the conference call, an archive has been posted at
http://biz.yahoo.com/cc/9/96979.html
I am sure a transcript will be published soon, for those who do not have the time to listen to the entire call.
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Permalink Reply by William Rice on
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I think that CHK will stick to their plan. They are looking down the road and know that they need to control sufficient resources to remain a top player. HS is proven and profitable. I am far from an expert in these matters but I think the move to gas is inevitable. Also, does having a pipeline infrastructure in the area contribute to the develop potential for HS?
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