Chesapeake reduces 2012 gas drilling, production

Many landowners and local taxing bodies in Louisiana and East Texas have enjoyed a thrilling ride during the recent past on the magic carpet of Haynesville Shale and a few lesser underground treasures of oil and natural gas. Windfall fortunes have been commonplace, and some will continue. But, the wild party may be slowing in tempo, as market prices for natural gas decline in response to growing production.

Chesapeake Energy Corporation based in Oklahoma City, one of the major operators in the Haynesville Shale "play," as the term is used in the tightly-knit and fast-moving energy community, announced in late January that 2012 will be a year of scaling back drilling and production, because of declining market prices. Specifically, Chesapeake says in a news released on January 23, it is taking "additional steps to continue creating shareholder value in response to the lower natural gas prices in the past 10 years," by scaling back drilling and production in the Haynesville and other "plays."

The company said it will reduce its dry gas drilling activity by 50 percent to approximately 24 rigs by the 20`121 second quarter, from 47 dry gas rigs currently in use, and by 67 percent from an average of approximately 75 dry gas rigs used during 2011. The company said drilling expenditures are expected to decrease approximately 70 percent from 2011 expenditures of $3.1 billion. Expenditures in 2012 will be the company's lowest since 2005.

Chesapeake says it intends to reduce drilling in the Haynesville in Louisiana and the Barnett Shale in Texas, to six operated rigs each, and to 12 rigs in the dry gas area of the Marcellus Shale in northeastern Pennsylvania.

The company also plans to reduce gas production by about eight percent , and if warranted, to double the production curtailment "if conditions warrant."

Haynesville and Barnett Shale production combined have accounted for virtually all of the nation's 14 billion cubic feet per day (bcf) of gas production growth during the past five years, indicating that reducing production in those "plays" will likely lead to flat or lower total natural gas production in the U.S. in 2012.

While pulling out investment in drilling for dry gas, Chesapeake will increase expenditures in "liquids rich" plays--oil--in the Eagle Ford, Utica Shale, Mississippi Lime, and other oil prospects, where about 85 percent of its total capital expenditures for 2012 will be allocated.

Devon Energy, also of Oklahoma City, has also been active in the regional shale "plays," and during the past year or more has taken leases and drilled in several areas of North Louisiana, including Winn Parish.

Devon recently announced it has received approval for an additional project in the oil sands in Alberta, Canada, where it is currently active as well.