More Dry Gas Drilling Cuts

By Eric Fox | January 30, 2012 AAA

Several other exploration and production companies have followed the lead of industry leader Chesapeake Energy (NYSE:CHK) and announced reductions in dry gas drilling for 2012, as the industry continues to cope with low natural gas prices. (To know more about oil and gas, read Oil And Gas Industry Primer.)

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Dry Gas Drilling Cuts
Chesapeake Energy said that the company would reduce its dry gas drilling by 50% from its original 2012 development plan. The company also plans to cut its natural gas production by 500 million cubic feet per day.

Others Follow
Continental Resources (NYSE:CLR) announced that the company would discontinue drilling in the Arkoma area of the Woodford Shale. The company cited low natural gas prices for the suspension. This action will not have that much impact as Continental Resources had only one rig operating here and was budgeting $2 million in capital expenditures in 2012.

Continental plans to continue the development of the Anadarko Woodford play, where wells have a higher content of liquids in the production stream. One recent well completed by the company in this area had initial production of 5.4 million cubic feet of natural gas and 160 barrels of oil per day.

The exploration giant plans to operate ten rigs in Anadarko Woodford in 2012 and has budgeted $355 million in capital to develop the play.

CONSOL Energy (NYSE:CNX) has decided to cut $200 million from its capital budget in 2012, lowering spending from $1.7 billion to $1.5 billion for the year. The company cited low natural gas prices due to "mild weather and high production" as the rationale for the cuts.

The company has targeted the Marcellus Shale for drilling reductions, and will reduce spending on the development of this play by $130 million in 2012. This translates to 23 fewer gross wells during the year. Although CONSOL Energy doesn't believe that 2012 production will be impacted by the cuts, the company reduced its production guidance range for 2013 by 10 Bcfe.

CONSOL is involved in a joint venture with Noble Energy (NYSE:NBL) in the Marcellus Shale. The two companies still plan to drill 99 gross wells in this play in 2012.

EQT Corporation (NYSE:EQT) has decided to suspend the development of the Huron play in 2012. The company was active here in 2011, drilling 115 wells in 2012. Even with these cutbacks, EQT Corporation expects to grow production by 30% in 2012 over last year. This growth will come from the development of the Marcellus Shale during the year.

The Bottom Line
The industry is now confronted with the potential of a doomsday scenario in the natural gas markets and is taking actions to help balance supply and demand. Time will solve the mystery of whether these actions will be enough to stabilize fundamentals and eventually lead to higher prices in the long term. (For additional reading, check out A Guide To Investing In Oil Markets.)

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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