Chesapeake to Cut Back -- Not a Bakken Story

Well, well, well -- this is interesting. This is like a bolt out of the blue.

Chesapeake is going to cut back.

Chesapeake Energy Corp. announced plans to reduce its long-term debt by 25% by substantially reducing leasehold spending and by reducing its 2-year production growth rate to 25% from its previously planned growth rate of 30-40% for 2011-12. 

 Chesapeake will sell some assets, but will not issue any new shares to cut debt.


As far as I know, Chesapeake is almost solely a natural gas company. According to its current presentation (180 slides, so it takes a moment to download), 90% of its production is natural gas; six percent oil; and four percent natural gas liquids. 


But, and it's a "big but," slide 24 of that presentation says that CHK is transitioning to unconventional oil and has been quietly buying up unconventional oil acreage since 2007. 

The rest of that slide:

• Quietly built leasehold positions in unconventional plays
  that would benefit from advancements in drilling and
  completion technologies
• 2008-2010: confirmed play concepts work
• Now have ~2.9 mm net acres in unconventional liquids-rich
  plays with ~3.7 Bboe of risked unproved resources and
  ~11 Bboe unrisked unproved resources
• Expect to increase liquids production to ~200,000 bbls/d,
  or ~25% of total production and ~35-40% of production
  revenue by YE 2015 through organic growth

On slide 24, there is a big hint that there could be another unconventional play for CHK; they are already in the Rockies (Niobrara and Frontier) and Eagle Ford Shale in Texas. But nothing in the Bakken.

And with that, I will let folks start thinking "what if?"

Just a reminder: ERF, WMB, OXY, XOM all recently bought into the Bakken paying $6,000 to $12,000/mineral acre (round figures; I could be off by a $1000 or so).

This suggests to me that CHK does not see any turnaround in price of natural gas in the near future.

I am truly perplexed. I'm not the only one.