Chesapeake Energy cuts back natural gas production growth

By Phaedra Friend Troy

The leading natural gas producer in the US Chesapeake Energy (NYSE:CHK) reported today that the independent firm will reduce its two-year production growth goal for 2011 and 2012 by 15 percent.

All the while, Chesapeake reported proved reserves of 16.9 trillion cubic feet of natural gas equivalent, an increase of 2.6 trillion cubic feet equivalent or 18 percent year over year. Despite selling approximately 1.4 trillion cubic feet equivalent of proved reserves in 2010, the company was able to add 2.4 trillion cubic feet equivalent of proved reserves through drilling at an estimated cost of less than $1.15 per thousand cubic feet.

Also, the company produced 2.9 billion cubic feet of natural gas equivalent a day 4 percent less in the fourth quarter of 2010 than the previous quarter.

In an effort to overcome potentially lower natural gas prices in 2011, Chesapeake has hedged 96 percent of its expected 2011 natural gas production at an average price of $5.84 per thousand cubic feet.

As its updated strategy moving forward, the company plans to reduce its long-term debt by 20 percent by lessening leasehold spending and decreasing its two-year production growth rate to 25 percent rather than its previously planned 30 to 40 percent.

"This plan represents a fundamental shift from our aggressive asset accumulation of the past few years to a multi-year period of asset harvest, characterized by a clear focus on capital discipline and maximizing returns,” said Aubrey McClendon, CEO of Chesapeake. “We believe we have assembled the best assets in the U.S. and have the technology, experience and financial and human capital to convert these assets into rapidly growing production, proved reserves and cash flow. Successful execution of our 25/25 Plan should very substantially reward our shareholders in both the short and longer term."

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