Monday, September 22, 2008

Haynesville Shale: Big signing bonuses thing of the past?

Chesapeake Energy has announced that they are cutting back on their natural gas production so the market can catch up with the supply. This could mean a lull in leasing in Northwest Louisiana for a period of time, and some of the larger bonuses that have been paid in the 'sweet spots' may be a thing of the past.

Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented, "During the past ten years, Chesapeake has led the E&P industry in production growth, and through our efforts and those of other leading independent producers, there are now abundant supplies of natural gas in the U.S. market. In fact, we believe there is now sufficient domestic natural gas supply growth to satisfy a growing percentage of the U.S. transportation fuel market through the use of CNG-fueled vehicles.
However, until the market has sufficient incentives for service station owners to build out CNG infrastructure, for auto manufacturers to offer new CNG vehicles in large quantities and for consumers to install home refueling devices, retrofit existing vehicles and purchase new CNG vehicles, insufficient natural gas demand exists to prevent periodic declines in wellhead natural gas prices below the industry's breakeven profitability levels.
"Therefore, we believe it is in the best interests of Chesapeake's shareholders to temporarily curtail a portion of our natural gas production, reduce the company's drilling capex and lower our production growth to provide time for rising natural gas demand to catch up with increasing natural gas supply. We have made these decisions even though Chesapeake is well hedged, has one of the lowest cost structures in the large-cap E&P industry and has a substantial portion of its capex budget during the next few years carried by other companies. We will monitor market conditions and bring curtailed natural gas production volumes back on stream as prices improve. We remain confident that natural gas is the single best solution to meeting America's energy, transportation and environmental challenges in the years ahead and we will continue our industry-leading efforts to increase both supply and demand for clean, affordable and abundant American natural gas.

Read the complete news release from Chesapeake

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