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Ohio Utica Shale

Chesapeake Energy to cut gas output

By admin Published: January 23, 2012

Oklahoma-based Chesapeake Energy Corp. said Monday it will cut natural gas output, idle drilling rigs and reduce spending in gas fields by 70 percent because of low natural gas prices.

But the company is still interested in developing its liquid-rich holdings in the Utica shale in eastern Ohio.

Natural gas futures for February delivery climbed as much as 4.9 percent to $2.457 per million BTUs on the New York Mercantile Exchange after Chesapeake made its early-morning announcement. Futures had declined 18 percent this year.

Gas advanced for a second day after Chesapeake said it will “immediately curtail” output of 500 million cubic feet per day and will cut planned spending from $3.1 billion in 2011 to $900 million in gas fields.

The federal government last week reported there was nearly 3.3 trillion cubic feet of natural gas in storage in the United States as of Jan. 13, the latest available figure. The amount in storage was 539 billion cubic feet higher than a year ago and 566 billion cubic feet higher than the five-year average of 2.7 trillion cubic feet.

The natural gas reduction marks a 8 percent decline from 2011 levels, the company said.

It could reduce daily production by an additional 500 million cubic feet a day if conditions warrant, the energy giant said.

It also will defer gas-well completions and pipeline connections, whenever possible, the company said.

Chesapeake intends to reduce its working drilling rigs by nearly 50 percent: from 47 to 24 in the second quarter of 2012 in fields that produce only natural gas.

Those cuts will occur in the Marcellus shale in northeastern Pennsylvania, the Haynesville shale in Arkansas, Louisiana and Texas and the Barnett shale in Texas.

Those operations will be cut to what the company called “bare minimum levels” until natural gas prices rise.

Said Aubrey K. McClendon, Chesapeake’s chief executive, “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.”

Chesapeake said it intends to focus on liquid-rich plans — including Ohio’s Utica shale — that “offer superior returns in the current strong liquids price environment.”

Such wells are producing oil and certain so-called wet gases such as propane, ethane and butane, all of which are lucrative because they have a wide variety of uses.

Chesapeake has increased its wet gases from 32,000 barrels a day in 2009 to almost 110,000 barrels today and hopes to boost the total to 250,000 barrels by 2015.

Spending on undeveloped leases will fall to $1.4 billion in 2012, down from $3.4 billion in 2011 and $5.8 billion in 2010. It will be limited to areas where the company is already active, Chesapeake said.

Its announcement came with natural gas prices opening at a 10-year low of $2.231 per million BTUs.

“I think we have found a price level where companies are finally going to stop producing,” Phil Flynn, vice president of research at PFGBest in Chicago, told Bloomberg News. “With Chesapeake cutting back, traders are wondering who’s going to be next.”

Earlier, EQT Corp. said it will suspend drilling in Kentucky and Southwestern Energy Co. said it may slow production in Arkansas.

Natural gas futures closed Monday at $2.58 per 1,000 cubic feet.

Chesapeake, a major player in Ohio’s developing Utica shale, is the No. 2 U.S. natural gas producer. It produces about 9 percent of America’s natural gas.

Bob Downing can be reached at 330-996-3745 or

Reporter Jim Mackinnon and Bloomberg News contributed to this story. The blog Ohio Utica Shale can be seen at

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Utica and Marcellus shale web sites

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ODNR Division of Oil and Gas Resources Management. State drilling permits. List is updated weekly.

ODNR Division of Geological Survey.

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Ohio Oil & Gas Energy Education Program.

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Utica Shale, a compilation of Utica shale activities.

Landman Report Card, a site that looks at companies involved in gas and oil leases.FracFocus, a compilation of chemicals used in fracking individual wells as reported voluntarily by some drillers.

Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.

Rig Count Interactive Map by Baker Hughes, an energy services company.

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