Chesapeake Curtails Natural Gas Production in Low Price Environment

Chesapeake 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.

Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented, "As a result of recession-related reduced demand and abundant U.S. production, natural gas prices have remained soft in recent months. However, we believe substantially lower drilling activity and natural reservoir depletion will work to rebalance U.S. natural gas markets by late 2009 or in early 2010. This recovery is already partially reflected in the NYMEX natural gas forward strip, but we believe it will become much more pronounced in the months to come as U.S. natural gas production declines begin to accelerate and the economy begins to recover. Our analysis indicates that the incremental returns for deferring revenue to future periods are very attractive and may in fact become exceptional once demand recovers and the NYMEX curve increases.

"We believe that Chesapeake's strong financial condition and extensive hedges provide us with the operational and financial flexibility to make prudent natural gas revenue maximization choices. We will continue to work to protect and enhance shareholder value, particularly in the current challenging economic environment. Additionally, Chesapeake and other producers remain well positioned to readily meet increased market demand for natural gas as the economy recovers and as power generation and transportation markets further expand their use of natural gas in the years to come."


Our Privacy Pledge

Most Popular Articles
Related Articles

Brent Crude Oil : $50.79/BBL 1.30%
Light Crude Oil : $49.96/BBL 1.10%
Natural Gas : $2.77/MMBtu 2.12%
Updated in last 24 hours