Chesapeake Pulls Back on Gas Production; Shares Jump

[Stocks-to-Watch]

Chesapeake Energy (CHK) is responding to the the extremely low price of natural gas by cutting production and shifting resources to drilling for liquids, the company said today. Natural gas prices have fallen in the past couple of years as new technologies have vastly increased the potential supply of the commodity in the U.S. And this year, a very mild winter has caused natural gas prices to fall even further, to prices that haven’t been seen in decades.

Chesapeake will cut its dry gas drilling activity by 50% to approximately 24 rigs by the second quarter from 47 dry gas rigs currently in use and 75 dry gas rigs in 2011. The company also plans to increase the portion of its capital expenditures devoted to liquids to 85% “in order to capture returns that are currently far superior to dry gas plays.”

“An exceptionally mild winter to date has pressured U.S. natural gas prices to levels below our prior expectations and below levels that are economically attractive for developing dry gas plays in the U.S., shale or otherwise,” said CEO Aubrey McClendon in a statement. “Having led the industry in natural gas production growth over the past 10 and five years, we recognize the need to demonstrate leadership and take action now in order to protect value for our shareholders. During the past five years, our gross operated natural gas production has increased from approximately 2.1 bcf per day to 6.3 bcf per day currently, and accounted for approximately 30% of the nation’s total growth in natural gas production.”

Chesapeake produces more natural gas than any other U.S. company except for Exxon Mobil (XOM). Chespeake shares rose 7.5% in morning trading.



Original Article Source by Barrons.com