Natural Gas Player Reduces Output

Wall Street Journal
HOUSTON (Dow Jones)--Chesapeake Energy Corp. (CHK) said Thursday that it will curb its production by another 200 million cubic feet of natural gas a day in response to lower natural gas prices.

Chesapeake, the largest independent producer of natural gas by volume, has cut its natural gas output by a total 400 million cubic feet, or about 13% of its gross operated natural gas production capacity, since March. The bulk of the production curtailments have occurred in the Mid-Continent and the Barnett shale, a vast natural gas field in North Texas.

The company also said it would limit production from most of its newly completed wells in the Barnett shale and Arkansas' Fayetteville shale to 2 million cubic feet of natural gas a day. In the Marcellus shale in Appalachia, Chesapeake will limit production at 5 million cubic feet a day, and in the Haynesville shale, a gas field in Louisiana and Texas, the company will limit production at 10 million cubic feet of natural gas a day.

The move underscores efforts by natural gas companies to stem the flow of gas into a market that has seen sharp price declines amid lower demand and robust supplies.

"As a result of recession-related reduced demand and abundant U.S. production, natural gas prices have remained soft in recent months," Aubrey McClendon, Chesapeake's chief executive, said in a news release, adding that lower drilling activity will help rebalance the natural gas market by late 2009 or early 2010.

Natural gas producers such as Devon Energy Corp. (DVN) and SandRidge Energy Inc. (SD) have been throttling back on drilling activity to cope with lower gas prices. Natural gas prices have plunged about 74% since reaching a peak last summer of 13.694 a million British thermal units.

The number of rigs drilling for natural gas has also plunged, falling by about half from its peak last September of 1,606 rigs, according to data from oilfield services company Baker Hughes Inc. (BHI)

But the steep decline in drilling activity has yet to make a sizable dent in natural gas production, which has soared as companies like Chesapeake learned to tap huge new gas fields known as shales.

Cameron Horwitz, an analyst with SunTrust Robinson Humphrey in Houston, said that the curtailment makes sense for Chesapeake.

"It's not a huge shock given where gas prices are today," Horwitz said.

Natural gas for May delivery settled floor trade Thursday 9.4 cents lower, or 2.55%, at 3.599/MMBtu.

-By Jason Womack, Dow Jones Newswires; 713-547-9201; jason.womack@dowjones.com

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