We finally got that press release warning of shut-ins from Chesapeake, and it had the expected impact on price. Feb was up 18.2 cents to $2.525. The market was oversold and the smart money had gone long, so it was the perfect triggering event for a bump up. But as we said a couple of weeks ago in Shut In by Press Release, beware of producers bearing gifts. The economics of shut-in rarely make sense.
So let’s do a little parsing on that press release to see what we can infer from Chesapeake’s strategy.
“Chesapeake plans to further reduce its operated dry gas drilling activity by 50% to approximately 24 rigs by the 2012 second quarter from 47 dry gas rigs currently in use.”
Makes complete and total sense. Hopefully they were going to do this anyway. Dry gas drilling is not economic at these prices. So much so, it makes you wonder why they don’t shut off dry gas drilling all together instead of a 50% cutback. (Perhaps investor carry / lease commitments?)
“Chesapeake to Redirect Capital Savings from Curtailing Dry Gas Activity to its Liquids-Rich Plays that Deliver Superior Returns”
This is just more of what most producers have been doing for the past two years. Guess what. Liquids-Rich plays produce gas too. In the really rich plays, the producer makes so much money on the liquids that the gas becomes virtually a byproduct. That doesn’t sound like a recipe for higher gas prices to me.
“The company plans to immediately curtail approximately 0.5 billion cubic feet (bcf) per day, or 8%, of its current operated gross gas production of 6.3 bcf per day, which is about 9% of the nation’s natural gas production.”
Join Backstage Pass to Read Full Article