In response to continued low natural gas prices and “as an effort to help bring U.S. natural gas supply and demand into better balance,” Chesapeake Energy Corp. said late Tuesday it has now upped its curtailments to about 1 Bcf/d of gross operated gas output, or about 1.5% of U.S. Lower 48 gas production, primarily in the Haynesville and Barnett shale plays.
“In addition, wherever possible, the company is deferring completions of dry gas wells that have been drilled, but not yet completed, and is also deferring pipeline connections of dry gas wells that have already been completed.”
Last month Chesapeake curtailed 0.5 Bcf/d, or 8% of its current operated gross gas output, which was 6.3 Bcf/d — 9% of U.S. estimated gas production (see Daily GPI, Jan. 24). At that time it said it would curtail “as much as 1 Bcf/d” if conditions warranted.
The company plans to hold a conference call to discuss 4Q2011 and full-year 2011 results at 9 a.m. EST on Wednesday.
Chesapeake’s net income totaled $429 million (63 cents/share) in 4Q2011, with operating cash flow of $1.3 billion and revenue of $2.73 billion. Production totaled 331 Bcfe. In 2011 Chesapeake earned $1.57 billion ($2.32/share) with operating cash flow of $5.31 billion and revenue of $11.64 billion. Production for the year reached more than 1.19 Tcfe.
The latest quarterly and full-year results include realized natural gas and liquids hedging gains of $315 million and $1.55 billion, respectively. Quarterly results were impacted by a net unrealized after-tax mark-to-market loss of $207 million, as well as a loss of $486 million for the full year resulting from the natural gas, liquids and interest rate hedging programs. The company also recorded a net after-tax gain of $242 million in the latest quarter and $238 million for 2011 related to sales and other items.
Average production in 4Q2011 was 3,596 MMcfe/d, up from 4Q2010’s 2,910 MMcfe and ahead of 3Q2011’s 3,329 MMcfe. For the year output rose to 3,272 MMcfe from 2,836 MMcfe in 2010. Liquids comprised 18% of Chesapeake’s output in the final three months of 2011, just 1% more than in 3Q2011, but up from 12% in the year-ago quarter. Natural gas production, which comprised 82% of total output in 4Q2011, totaled 272 Bcf in the final quarter, versus 235 Bcf in 4Q2010 and 254 Bcf in 3Q2011.
Chesapeake’s average daily production of 3.596 Bcfe in 4Q2011 consisted of about 2.959 Bcf of gas and 106,000 bbl of oil and natural gas liquids. Proved natural gas and oil reserves in 2011 increased by 1.7 Tcfe, or 10% year/year to 18.8 Tcfe, despite the sale of 2.8 Tcfe.
As it disclosed in January, Chesapeake has reduced its 2012 operating drilling capital spending in dry gas plays by about 70% from 2011 levels, its lowest level since 2005. Average net gas output is projected to decline by 4% from 2011 levels, it said.
“By the 2012 second quarter, the company expects that its dry gas rig count will be reduced from an average of approximately 75 dry gas rigs used during 2011 to approximately 24 rigs, including 12 rigs in the northeastern portion of the Marcellus Shale, six rigs in the Haynesville Shale and six rigs in the Barnett Shale,” the company said. “Chesapeake’s operated dry gas drilling capital expenditures in 2012, net of drilling carries, are expected to decrease to $900 million, a decrease of approximately 70% from similar expenditures of $3.1 billion in 2011 and the company’s lowest expenditures on dry gas plays since 2005.”
As a result of production curtailments and reduced drilling and completion activity, partially offset by growth in associated natural gas production in liquids-rich plays, Chesapeake said 2012 net gas production will average about 2.65 Bcf/d, down 100 MMcf/d, or 4%, from 2011 average output of 2.75 Bcf/d.
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