UPDATE 2-Chesapeake cuts drilling plan on natgas price drop
(Adds details on debt repayment, hedging contracts)
SAN FRANCISCO, Sept 22 (Reuters) - Chesapeake Energy Corp (CHK.N) has cut capital expenditure for drilling by 17 percent through 2010 due to a plunge in natural gas prices and concerns about a U.S. market surplus, the company said on Monday.
The company also said a 50 percent drop in natural gas prices since June 30 had helped improve its energy price hedging position by $6 billion, and its shares rose 1 percent.
Chesapeake, which said it became the top U.S. natural gas producer last quarter, is also cutting its forecast of growth in gas production to 18 percent from 21 percent for this year and 16 percent from 19 percent for both 2009 and 2010.
It will temporarily cut production by a net 100 million cubic feet per day in the Mid-Continent, where wellhead prices of $3 to $5 per thousand cubic feet were "substantially below" break-even. That is 4 percent of its total capacity.
"We will monitor market conditions and bring curtailed natural gas production volumes back on stream as prices improve," Chief Executive Aubrey McClendon said.
The number of its operated drilling rigs will fall to about 140 rigs by the end of this year from 157 now, and that will stay steady for the next two years, the company said.
Chesapeake went on to say it had resumed plans to sell a minority stake in its "midstream" assets that process and ship gas to trading hubs, for about $1 billion. McClendon has said the assets are not yet profitable as they are being expanded to reach new wells, but a partner would help fund their growth.
The company said it was transferring all midstream assets outside of Appalachia into new partnership entities managed by Chesapeake Midstream Partners LP, which is finalizing a secured $500 million revolving credit facility.
CUTTING DEBT
Since the end of the second quarter, the value of Chesapeake Energy's hedging positions had improved from a negative $6.5 billion to a negative $500 million on Sept. 18.
The company, which had lost a net $1.6 billion last quarter due to hedging activity, said it would use an anticipated $2 billion of excess cash in 2009 and 2010 to pay down debt, which grew to a net $13.7 billion at the end of June.
Of $3.2 billion cut from the drilling capital expenditure budget through 2010, $1.9 billion is due to reduced drilling activity, while the rest is attributable to its Fayetteville and Marcellus shale joint ventures, the company said.
On Friday, Chesapeake closed its $1.9 billion sale of 25 percent of the Fayetteville shale to BP Plc (BP.L).
Chesapeake, which had said this month it was in talks with companies interested in buying into Marcellus, said on Monday it was making progress and expects completion this year. Continued...
