Chesapeake Energy Corp.’s natural gas production in nonshale plays peaked in late 2007, fell by 16% in 2008 and is on track to be down more than a third (36%) by the end of this year, company executives said Wednesday.

In an all-day analyst meeting, executives with the Oklahoma City-based producer detailed how the independent has shifted its exploration focus to shale plays. Gas shale development and production from the emerging Granite Wash play in West Texas now account for more than 60% of the independent’s total output.

Even as gas prices fell, Chesapeake increased the rig count to 94 in its “big four” shale plays — the Barnett, Haynesville, Marcellus and Fayetteville — and in the Granite Wash. Meanwhile, Chesapeake’s other onshore gas leaseholds lost a total of seven rigs in the past year.

The rig shift has gone to the highest rate of return projects, to deploy drilling carries and to held-by-production acreage, the company noted. Gas output this year over 2008 totals is expected to be up 5-6%, which is up from a previous forecast of 4-5%.

Increased development is planned in 2010, when the company expects to see output jump 8-10% from 2009. By 2011 the producer’s output could be 12-14% higher than in 2010.

The producer also said it would spend more than initially budgeted this year, or $3.15-3.35 billion, compared with an August forecast of $3-3.2 billion. However, cash flow for 2009 is lower than forecast in August: $5.3-5.6 billion, compared with $5.8-6.2 billion. Exploration spending in 2010 could jump to as much as $4.7 billion, the company noted.

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