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 sesport on -
Skip Peel - I just used the link on Mr. Buckner's next topic. At the bottom of CPK's website, in small print, there's a link for site notices. It states about halfway down that links will not be allowed. Gee, I'm disappointed, they've spent all that money for the website and they don't want us to share it.
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Permalink Reply by wpt9452 on
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A few weeks ago I made a comment about some of us getting too greedy and hoping for $50,000 acre leases. I was quickly put in my place. Common business sense tells you that money runs out of the deepest pockets. Of course we have a perfect storm here, gas prices depressed, the stock market and capital growing tighter by the day. Like most things in life you must have balance. If we lease for what the market will support and do not take capital funding for drilling and pipelines then this shale gas will begin to take off. No way am I saying lease cheap and hope for good wells, just be reasonable and fair and make sure the O&G treat you the same. All this gas doesn't do us much good if we don't have a company willing to share the wealth. I wish us all the best and hope the upcoming leases will still excite most of the folks that really need it.......
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Permalink Reply by P.G. on
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Maybe Chesapeake is getting ready for when the government imposes horrendous taxes and fees on the OGs to pay for those votes a particular candidate wants!
Of course too, this slowdown could be a blessing for those that aren't drilled yet and have lousy leases! Maybe their leases will expire before they drill and someday get a better deal.
Energy supplies are only going to get shorter. One party doesn't even want more drilling. If that party wins and prices go even higher, the voters will run them out of office after 4 years and then maybe we all will get 8 well in our sections, huh?
I'm just hating that we will have to live through that nonsense for the next few years.
Some folks have to be shown though, right?
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Permalink Reply by BirdDawg, plain ole' idiot on
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Jim,
Damn, why do you make me think this hard this late at nite? I gotta take a nap.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Good night BirdDawg. Good night Jim Krow. See you tomorrow. Skip
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Skip,
Please don't think I am the enemy. I just think I am being realistic.
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Jim, dang, have you been talking to my wife?
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Permalink Reply by Skip Peel - Mineral Consultant on
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Great post, KB. I think your assessment is spot on. The real value of GoHaynesvilleShale is the timely sharing of factual information and the analysis of those whose experience helps all the members understand how the play is evolving. I feel that a majority of the members appreciate the insight provided by you, and the other industry veterans and professionals, who have chosen to share your knowledge. That's why I spend so much time here. Thank you.
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Permalink Reply by Grice on
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The conference call indicated there to be more activity in the HS, and less in other regions. Two key notes that interested me the most; (1) increase Haynesville activity, hold steady on Fayetteville, and decrease Barnett. (2) anticipate 18-36 months for takeaway infrastructure to be in place. To paraphrase "Its easier to increase supply, than it is to increase demand".
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Permalink Reply by Les Bamburg on
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Grice, this is consistent with what O&G companies have said in the past. The Haynesville Shale will generate the highest netbacks and returns so it will be given priority for resources (rigs, capital, people, etc).
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Permalink Reply by Skip Peel - Mineral Consultant on
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Jim, Aubrey just can not keep quiet. Now he's saying, we are first again and our competitors will follow our lead (my paraphrase).
NEW YORK, Sept 23 (Reuters) - Chesapeake Energy Co (CHK.N: Quote, Profile, Research, Stock Buzz), which has cut its spending on natural gas well drilling, said on Tuesday it expects other energy producers to begin reducing exploration spending in the coming months.
"While we may be the first, we will certainly not be the last," Chief Executive Aubrey McClendon told a conference call.
The number of rigs drilling natural gas is likely to drop by 200 to 400 in the coming six months as companies pare back their spending, he added. (Reporting by Matt Daily, editing by Gerald E. McCormick)
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Permalink Reply by Grice on
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Yes, but I was sensing a slight amount of fear that the posted news story was going to negatively impact this area. My offering was in hopes to reassure people that the decisions made by Chesapeake will not have a negative impact, but rather show to be more favorable for "us".
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