Chesapeake to lower gas production
www.timesleader.com/news/Chesapeake_to_lower_gas_production_01-24-2012.html
Posted: January 24, 2012
By Ron Bartizek rbartizek@timesleader.com
Business & Consumer / City Editor
Company to cut by 30 percent the number of drill rigs active in NEPA Marcellus Shale area.
Faced with decade-low natural gas prices that have made some drilling operations unprofitable, Chesapeake Energy is reducing its commitment to natural gas production, and will cut back by 30 percent the number of drilling rigs active in the Marcellus Shale area in Northeastern Pennsylvania.
Chesapeake, the nation’s second-largest natural gas producer, said Monday it plans to cut its current daily production by 8 percent.
Over a year, that means the company would produce the same or slightly less natural gas in 2012 than it did in 2011. Chesapeake produces about 9 percent of the nation’s natural gas.
The company said it would reduce its drilling activity in so-called “dry gas” areas where few other products are extracted. That includes Northeastern Pennsylvania, where the company plans to have 12 operating drill rigs by the second quarter of 2012, down from 17 now, said Brian Grove, Chesapeake’s senior director-corporate development.
In a release announcing the cutbacks, Chesapeake said it would defer completion of some dry gas wells that have been drilled but not completed. Grove said that will not be the case here, and the company expects to drill about 140 wells this year in Northeastern Pennsylvania. The company has 194 producing wells in the region.
Employment will not be reduced, Grove said.
“We have more than 1,500 employees in Pennsylvania and more than a dozen facilities. While some employees will be redirected in their activities (e.g. drilling crews), no layoffs are planned.”
Other activities will be adjusted to match the slower pace of drilling, Grove said, “but projects under way will continue as normal.”
Leasing will slow as well.
“While we are not actively seeking large amounts of new acreage, a limited amount of leasing activity will continue in many areas to complete planned drilling units,” Grove said.
While Northeastern Pennsylvania wells produce dry gas, those in southwestern Pennsylvania and northern West Virginia yield other hydrocarbons, such as propane, ethane and butane, Grove said.
Other dry gas regions will see larger cutbacks. Overall, Chesapeake will reduce the number of rigs working in dry gas regions by half, with fields in Arkansas and Texas losing 60 percent of their active rigs.
The company’s plan also calls for a cut of 500 million cubic feet of gas per day, about 8 percent of its current production, in two drilling regions in Texas, Arkansas and Louisiana.
The move is designed to reduce the glut of natural gas in the country, and therefore increase prices. But analysts caution that drillers historically have reneged on plans to cut output in times of low prices, bowing to pressure from investors to increase production.
Extreme weather for two winters and two summers kept natural gas prices high by boosting demand for home heating and power generation. But this season’s mild winter weather, especially in the Northeast and Upper Midwest, has crimped demand and led to a glut.
Natural gas futures slipped to $2.32 per 1,000 cubic feet last week, their lowest levels since 2002.
Also, even as drillers avoid dry-gas regions, they are aggressively increasing drilling in regions rich in oil and other liquids. Those regions also produce large amounts of natural gas, which will help keep total natural gas production high and will likely keep prices relatively low.