"Chesapeake Energy Corp. said Thursday that it will curb its production by another 200 million cubic feet of natural gas a day in response to lower natural gas prices. Chesapeake, the largest independent producer of natural gas by volume, has cut its natural gas output by a total 400 million cubic feet, or about 13% of its gross operated natural gas production capacity, since March."
"Aubrey McClendon, Chesapeake's chief executive, said in a news release, adding that lower drilling activity will help rebalance the natural gas market by late 2009 or early 2010." (Source: WSJ)
Natural gas inventories are still very high compared to historicals. From eia.doe.gov, working gas in storage as of April 17, 2009 was 1741 cubic feet, 35.8% above year ago levels and 22% above the 5 year average (2004-2008).
Chesapeake has a great asset base. In their April 2009 presentation they calculated a $42 NAV with $6 natural gas. They also actively hedge their production. For 2009 42% was hedged w/ natural gas swaps at an average price of $7.79 and 40% was hedged with collars (Floor: $7.3, Ceiling: $9). As of 2/13/09 their hedges amounted to $1.6 billion in open mark-to-market value. This could benefit the bottom line during this environment. They also have $12 billion in senior notes that start to mature in 2013 ($864MM) and expect to net $1.2B in cash (sources-uses) in 2009.
Perhaps the equity is forecasting higher natural gas prices or better earnings going forward. I will be watching the charts to see how the CHK/NATGAS spread narrows (if it does...)
Chesapeake Energy April 2009 Presentation
The charts below provide the price relationship and ratio. (charts from stockcharts.com)
