Chesapeake Energy Corporation Further Curtails Natural Gas Production in Current Low Price Environment

OKLAHOMA CITY--(BUSINESS WIRE)--Apr. 16, 2009-- Chesapeake Energy Corporation (NYSE:CHK) today announced it has elected to curtail approximately 400 million cubic feet (mmcf) per day of its gross natural gas production due to continued low wellhead prices. The reduction includes the 200 mmcf per day curtailment of natural gas production previously announced on March 2, 2009. Chesapeake has resumed 7,000 barrels per day of oil production from previously curtailed oil wells.

The company’s 400 mmcf per day curtailment represents approximately 13% of Chesapeake’s current gross operated natural gas production capacity. The wells that have been curtailed are primarily located in the Mid-Continent and Barnett Shale regions. Until natural gas prices strengthen, the company plans to limit production from most newly completed wells in the Barnett and Fayetteville shales to 2 mmcf per day and in the Marcellus and Haynesville shales to 5 and 10 mmcf per day, respectively, in addition to the approximate 400 mmcf per day curtailment.

The company is able to make this decision because of its strong financial condition and extensive natural gas hedging positions. In addition, because of the steeply declining production profile of new natural gas wells and the upward trending slope of the NYMEX natural gas futures curve, Chesapeake believes deferring production and revenue to future periods with higher natural gas prices creates greater shareholder value than selling production into the current unusually low priced natural gas market.

http://www.chk.com/news/articles/Pages/1277378.aspx

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Permalink Reply by Skip Peel - Mineral Consultant on April 16, 2009 at 11:01
Les. Have you run across any reports of other operators curtailing production of this magnitude? That's a significant increase in curtailed production from 7% on March 2nd. to an additional 6% April 16.
Permalink Reply by Les Bamburg on April 16, 2009 at 11:34
Skip, no I haven't but would expect to see actions by some of the other operators given the continued decline in natural gas prices in the US. We are a long way from the bottom.
Permalink Reply by sesport on April 16, 2009 at 11:47
Les - Do you expect that this will also curtail new drilling, or will they go ahead and drill to hold with minimal production?

Always appreciate your help - sesport :0)
Permalink Reply by Les Bamburg on April 16, 2009 at 11:53
Sesport, I believe new drilling on the Haynesville Shale will continue at the current pace.

1) Must drill to hold acreage especially in the southern areas where there is not much shallow production.
2) Some operators have significant volumes hedged on gas price
3) Chesapeake is drilling with Plains money
4) Haynesville Shale gas has better netback prices than most other areas
Permalink Reply by Grillin' - MmmMmm on April 16, 2009 at 13:55
HS netbacks are okay, but not great. I think South Texas is still a bit better due to the additional take away capacity. And of course, the offshore and Marcellus net backs are better. marcellus actually sells at a premium to Henry Hub! So does Black Warrior Basin, or maybe its a slight deduct. HS probably 2nd Quartile or lower 1st. But if production keeps going up ahead of pipeline expansion, watch for netback blow outs.

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