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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Didn't Aubrey recently discount the looming affect of a "glut"? I have a feeling that the "glut" and the "50% decline in the price of natural gas ..." are less the problem than increased debt and stockholder unrest. Do any members have a "cost to produce" figure for Chesapeake? I have seen reports where other producers highlighted their low cost to produce.
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Permalink Reply by BirdDawg, plain ole' idiot on
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Skip,
Don't you think that anyone in the ng business knows that when ng is selling for $12 - $13 that it is going to go down? And then of course, it is probably going to go back up if we have a cold winter. Of course the problem is, if there is a "glut" then it could possibly stay down. But you know that McClendon knows the game as good as anybody. If there is a glut, who is causing it? They know, and it is up to them to find alternative uses. A big part of it is that they are going to bring lease bonuses down when they start back up leasing. Just my opinion.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Hi BirdDawg. I agree with your comments with the possible exception of "McClendon knows the game as good as anybody". Aubrey has not only been the most vocal of the CEOs, I wager that he is the only CEO that most of us shalers can name. His penchant for (self) promotion and touting specifics of Chesapeake's strategy flies in the face of the standard operating model of E&Ps. I am not an old hand, and we have some members who are (and I hope comment), but I have pondered why he does what he does. I suspected that he was beating the drum to pump up his stock and raise money on the "Street". Since the "Street" is in trouble and raising capital is tough, I surmise that he needs to change course a little bit. And suspect that he is dealing with some uncomfortable shareholders.
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Skip,
I think we agree on the facts. McClendon is all about his personal and corporate gain. I am certainly no old hand, but I guess my post(s)more refer to my personal fears. I know we agree.
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Permalink Reply by Skip Peel - Mineral Consultant on
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I agree, Jim. Any suggestion as to consolidation? I'd like to see some discussion on the implications of the announcement.
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Permalink Reply by Iris on -
Maybe one of you could post See discussion titled "Such & Such" are also see ___ on each of the three...
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Permalink Reply by Skip Peel - Mineral Consultant on
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Thanks, Tiger. I will consider your suggestion. At this point, it seems moot as there is little interest in commenting on any of the posts regarding this article. The implications of the announcement would seem to support a pull back in Chesapeake's aggressive leasehold acquisition. Not good news. Let's hope that it is temporary and that the price of ng will rebound and competition for minerals will resume.
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Permalink Reply by Two Dogs, Pirate on
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Someone else will start to fill the void and Chesapeake will again mount their stickhorse and begin to lease again.
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Permalink Reply by Randy on
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This is all a game of posturing. Don't let any one thing concern you too terribly much.
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Permalink Reply by Skip Peel - Mineral Consultant on
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You are correct, Dena. But this news may not affect only Chesapeake. Competition has been good for HS mineral owners and Chesapeake has driven much of that competition. I would like to see aggressive leasehold acquisition continue and bonus offers remain high. Those who have yet to lease may need to exercise some patience. Let's hope that the price of ng rebounds and that production from HS wells continue to provide strong incentive for the play to continue unabated.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Right you are, KB. That's why I wondered in my original reply about Chesapeake's cost to produce. Do you think that their cost is higher than the other major shale players?
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