Mmarrkk

Energy Roundup: Chesapeake Changes Its Plans

Well, lets see: at $4 nat gas, CHK will sell 72% of its production for $8.52. At $3 nat gas, CHK will sell 72% of its production for.....$8.52. All of the knock out hedges have been restructured and don't start hitting until late 2009 so gas would have to stay low until then for them to take effect. And they only represent 10% of the 72%.

So short answer: instead of making $2 B next year in profit, CHK may make $1 B IN PROFIT.

If gas makes it to $3, you'll see rigs cut to 1/2 of what is drilling now. Given the nature of the new Shale Gas wells being drilled, they lose 70% of their production rate within the first year of production. Without new wells to replace them, production in the US will drop precipitously. When we lose a few BCF/day in capacity, what do you think will happen to gas prices? Hmmm? While I doubt you'll see $3 gas, if it does come it will not linger there for more than a month or two and then go whipsawing back up. Nat Gas supplies are almost 50% made up of unconventional gas plays...meaning very very high decline rates. Stop drilling and the bottom falls out. Watch and see what happens this spring!