Mid Continent Natural Gas Production Halted

BY JOHN-LAURENT TRONCHE
March 02, 2009
http://www.fwbusinesspress.com/display.php?id=9664
Fort Worth Business Press

Chesapeake Energy Corp. will halt production of about 240 million cubic feet of natural gas equivalent in the company’s mid-continent operations due to “unusually low prices” of commodities.

The Oklahoma City-based company will stop production, much in western Oklahoma, for at least the month of March, which represents about 7 percent of Chesapeake Energy’s gross operated production capacity, according to a March 2 press release. Also, the company is considering a further 10 percent reduction in drilling activity if oil and natural gas prices remain low throughout the year.

Currently, oil is at about $41 per barrel while natural gas is about $4.30 per million British thermal units - both well below the peaks of summer 2008, or even desirable levels of $100 per barrel and at least $8 per Btu, respectively.

Chesapeake Energy CEO Aubrey K. McClendon said the company expects “drilling activity to decline well beyond the 40 percent drop already seen since August 2008,” and natural gas production should continue to fall as the industry struggles to reduce the gap between a supply surplus and shrinking demand.

“We have elected to temporarily curtail approximately 7 percent of our gross natural gas and oil production in order to protect shareholder and royalty interest owner value during this time of extraordinarily low prices, especially for Mid-Continent natural gas,” McClendon said in the statement. “During March 2009, most Mid-Continent natural gas prices at major interstate pipeline delivery points will average around $2.70 per thousand cubic feet, a price at which most natural gas production is unprofitable.”

Chesapeake Energy currently operates 110 rigs, down from 158 in August 2008. Should the company elect to implement the additional 10 percent cut in drilling activity, it would do so in areas without joint ventures – one of which is, at least currently, the Barnett Shale.

Shares of Chesapeake Energy currently trade above $14 per share, having fallen about 69 percent in the last 12 months. Shares are down 13 percent for the year.

jtronche@bizpress.net