Chesapeake expects rebound
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Chesapeake CEO: Dramatic natural gas price rebound expected
BY RANDY ELLIS
Current low natural gas prices are setting the stage for a dramatic price rebound that should begin this fall or winter, Chesapeake Energy Corp.’s chief executive officer told analysts Tuesday.
"Today’s gas prices are clearly not strong enough to support a North American rig count that is high enough to prevent a very severe and unprecedented decline in North American gas production,” Aubrey K. McClendon said.
"This will set the stage for a dramatic reversal of natural gas prices sometime this fall or winter,” he said.
"How high will gas prices go in the recovery and rebound phase in the next cycle? Obviously, we don’t know. But clearly, gas prices were too high one year ago at $12 to $13 per thousand cubic feet, and today they are far too low at $3.50 per thousand cubic feet,” he said. "So my guess is the rebound will overshoot on the high side, just as it has overshot on the low side.”
McClendon said if there is a surprise, it likely will be that natural gas prices rebound sooner rather than later.
McClendon said he considers $6 to $7 per thousand cubic feet to be the low end range of normalized pricing and $8 to $9 per thousand cubic feet to be mid-range of normalized pricing.
Tony Say, president of the Oklahoma City gas marketing company Clearwater Enterprises, said he doesn’t totally agree with McClendon’s prediction.
"I don’t see the dramatic rise he sees,” Say said.
Say said a lot depends on the economy, but he expects a more gradual rebound in prices that would begin in early or mid-2010, and perhaps even later than that.
McClendon made his prediction to analysts and reporters during a conference call Tuesday that was timed to follow Monday’s release of Chesapeake’s first quarter financial results.
Although the company recorded a $5.746 billion first quarter loss, McClendon said that was caused by a "write-down under the conservatism of full cost accounting” and said the company had a "very solid operational and financial performance” during the quarter.
Despite selling $5.2 billion in producing assets during the past year, Chesapeake was still able to produce 2.367 billion cubic feet per day of natural gas equivalent, which was a 5 percent increase over the same quarter a year earlier, he said.
McClendon also said other companies still owe Chesapeake about $4 billion in drilling carries from previous asset sales, which means those other companies will be paying drilling costs on projects where Chesapeake will be operating the wells and sharing in the production benefits.
McClendon said "things are going great” in regards to production results from wells Chesapeake has drilled in four large shale formations.
The company has drilled three new wells in the Haynesville formation capable of initial gas production rates for more than 20 million cubic feet per day, two wells in the Barnett formation that have been producing more than 9.5 million cubic feet a day and two wells in the Marcellus formation that are producing at rates of 6 and 7 million cubic feet per day, McClendon said.
And in the Fayetteville formation, Chesapeake’s last 30 operated wells appear to be producing 30 percent better than the company’s 2.2 billion cubic feet equivalent per day expectation, he said.
Commenting on recent critical news media accounts of his receiving a $75 million bonus in January, McClendon said he found those reports "a bit surprising” since the company had disclosed the bonus and reasoning for it in a Securities and Exchange Commission filing last January. McClendon said he also e-mailed a copy of the report to about 45 analysts, large shareholders and reporters at the time and "did not receive back a single complaint.”
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Originally Posted by adaniel
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