Chesapeake Energy Corp. — whose logo is a blue gas flame — is continuing the stampede to oil and liquids-rich gas plays along with other U.S. independent producers (see related story), reallocating $700 million of spending from gas to oil over this year and next and pulling some rigs from shale plays (see Daily GPI, Feb. 19).

“…[E]verybody hates gas right now, and they hate it now and forever,” Chesapeake CEO Aubrey McClendon told financial analysts during a first quarter earnings conference call Wednesday.

Chesapeake has revised its 2010 and 2011 drilling plans to redirect capital from gas to liquids-rich plays. In its gas shale plays, Chesapeake has reduced its previously planned 2010 peak of 120 operated rigs to approximately 106 rigs and its planned 2011 peak of 122 operated rigs to approximately 105 rigs.

In total, the company has reduced its planned capital expenditures on gas-focused plays by approximately $300 million and $400 million in 2010 and 2011, 12% and 17%, respectively and plans to redirect this capital to accelerate drilling activity in its liquids-rich plays.

In particular, Chesapeake plans to increase its drilling activity in its Granite Wash, Eagle Ford Shale, Anadarko Basin, Permian Basin and Rocky Mountain unconventional liquids-rich plays where it is currently drilling with 21 operated rigs. Chesapeake has acquired approximately 1.9 million net acres of leasehold in these plays, and its goal is to achieve a 50-operated-rig drilling program in these plays within the next six to 12 months.

Going forward, oil is expected to be more attractive to the international players with whom Chesapeake will be looking to do deals.

“What we’re finding is the big companies around the world that are oil companies have clearly loved what we have found in gas in the U.S., but given their druthers, they’d probably just as soon we bring them into oil deals,” McClendon said. “They have a big appetite, a lot of money, and it takes big leasehold positions to create the kind of billions of barrels of oil equivalent impact to them that we think we can deliver.

“So we’ll continue to do what we do really well, perhaps singularly well, which is to identify new plays and buy the acreage, then bring in partners at a very advantageous cost differential to us. It’s been a model that’s worked well for us.”

CFO Marcus Rowland said the company should have no trouble hedging its oil output as the counterparties it will need are the same it uses on the natural gas side. In fact, the market for hedging oil is more liquid than it is on the gas side, he said.

McClendon suggested that given last month’s apparent well blowout in the Gulf of Mexico and subsequent oil leak (see related story), onshore domestic oil exploration and production will get a boost.

“My guess is offshore oil drilling just got a little more difficult, and probably more expensive, and so I think the stage is set for there to be a real rejuvenation in onshore American oil production. It will be led by the same people that led the rejuvenation of the gas business, of which, of course, we are one.”

Chesapeake reported first quarter net income of $590 million (92 cents/share) compared with a loss of $5.7 billion (minus $9.63/share) in the year-ago period, during which low gas prices prompted a a $6 billion write-down in the value of assets.

The latest quarter’s results included a realized natural gas and oil hedging gain of $399 million and other special items. Excluding the items Chesapeake reported adjusted net income of $524 million (82 cents/share), which beat analyst estimates of 70 cents/share, according to Thomson Reuters.

The company’s production for the first quarter averaged 2.586 Bcfe/d, a decrease of 32 MMcfe, or 1%, below the 2.618 Bcfe/d produced in the 2009 fourth quarter and an increase of 219 MMcfe, or 9%, over the 2.367 Bcfe/d produced in the 2009 first quarter. Adjusted for 2010 first quarter asset sales of a 25% joint venture interest in the company’s Barnett Shale assets (averaging approximately 155 MMcfe/d of production during the 2010 first quarter) and the company’s sixth volumetric production payment transaction (averaging approximately 14 MMcfe/d during the 2010 first quarter), Chesapeake’s sequential and year/year daily production growth rates would have been 5% and 19%, respectively.

Average prices realized during the first quarter (including realized gains or losses from commodity derivatives) were $6.31/Mcf and $67.70/bbl, for a realized natural gas equivalent price of $6.80/Mcfe.

As of April 30 Chesapeake’s gas and oil hedging positions with its 14 counterparties had a positive mark-to-market value of approximately $265 million.

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