Chesapeake Energy Corp will slash drilling for dry gas by half as prices for the fuel fell to their lowest level in a decade, the company said on Monday, sending its shares up more than 5 percent.
The move by the second-largest U.S. natural gas producer is the industry’s biggest reaction yet to low prices resulting from a supply glut that has emerged with the boom in shale rock drilling around the country.
Chesapeake has been the most aggressive driller in the United States, expanding its acreage holdings and pushing into new fields despite the boom in production.
“An exceptionally mild winter to date has pressured U.S. natural gas prices to levels below our prior expectations and below levels that are economically attractive for developing dry gas plays in the U.S., shale or otherwise,” Chief Executive Officer Aubrey McClendon said in a statement.
The company said it would cut drilling activity at dry gas fields to about 24 rigs by the second quarter, from 47 currently in use, or about one-third the level the company averaged last year.
Instead, Chesapeake will shift activity to liquids-rich fields, whose products are linked to the price of oil, such as those in the Eagle Ford in south Texas, Utica in Ohio and Granite Wash on the Texas-Oklahoma border.
The company said it would immediately cut daily production by about 0.5 billion cubic feet, or 8 percent of its current total of 6.3 bcf, and could reduce it by as much as 1.0 bcf if warranted.
The move would not affect the company’s goal of cutting its net debt to $9.5 billion by the end of 2012, McClendon said.
Shares of Chesapeake rose 5.2 percent to $22.05 in premarket trading.
© Thomson Reuters