Chesapeake Energy’s spending cuts lead to jump in shares

Shares in Chesapeake Energy rose more than 7% on Wednesday as the Oklahoma City company announced cuts in spending and natural gas output this year.

Company officials, as OK Energy Today reported earlier in the week, said the market was “oversupplied.” Natural gas prices had fallen 30% this year because of mild weather with the exception of the January Arctic freeze that resulted in record high demand for gas.

“We would assume that demand would come back in some measured fashion and therefore, we could return production in a measured fashion,” Chief Executive Domenic Dell’Osso said this week in a conference call where the fourth quarter earnings report was discussed.

“We feel comfortable pausing turn-in lines and slowing completions activity, slowing drilling activity to match that cadence should be considered as we would also be comfortable accelerating those cycle times in the future when needed.”

As Chesapeake officials indicated in their initial report, the company plans to cut one well each at the Marcellus and Haynesville basins where it has focused its exploration and operations efforts.  At the same time, the company intends to cut capital expenditure guidance by nearly 20%.

The reduction in guidance and operations could lead to Chesapeake gas production sliding down to 2.7 billion cubic feet a day in 2024. Last year, Chesapeake’s gas production was 3.5 bcfd.

Chesapeake’s cost-cutting, a move also taken by other major natural gas producers in the U.S., comes after its merger with smaller rival Southwestern Energy of Houston. It is an all-stock transaction of $7.4 billion and stockholders of both firms have yet to vote on an approval.

“We can continue to work on things from an integration standpoint. If it (the deal) takes longer, we won’t let that distract us in any way. We’re well into the work required for a successful integration,” Dell’Osso told those at the conference call.