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Chesapeake Energy scales back Marcellus drilling

By , - Last modified: January 23, 2012 at 12:10 PM

Citing slumping natural gas prices, a major Marcellus Shale natural gas company has announced significant cutbacks to its drilling efforts.

Chesapeake Energy Corp. plans to reduce its dry gas rig count from 75 in 2011 to 24 by the second quarter, the company said in a statement. Half will operate in the Marcellus Shale, and six each in the Haynesville and Barnett shales in the Gulf Coast states, the Oklahoma City-based company said.

Chesapeake also will reduce investment in dry gas production from $3.1 billion in 2011 to $900 million this year, and will reduce daily production immediately by 8 percent, or half a billion cubic feet, it said. Chesapeake will lower production an additional 8 percent, if needed. The company accounts for about 9 percent of total U.S. production.

Chesapeake said it plans to shift resources to wet-gas plays. Unlike dry gas, which is solely a fuel, wet gas byproducts provide valuable feedstock to the chemical and plastics industries.

Due to expanding U.S. production and a warm winter, world natural gas prices have fallen from above $5 in 2010 to below $2.50 per million BTUs this month, according to the U.S. Energy Information Administration. In coming months, some companies might have to pay customers to accept surplus gas or else face steep inventory charges, Reuters reported.

Low prices have entered the debate in Harrisburg over regulating the natural gas industry and imposing a drilling tax or impact fee. Such added costs "need to be treated very carefully in this low-price environment," the Marcellus Shale Coalition wrote in a Jan 12 letter to state legislative leaders.

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