Chesapeake Gently Lets Go of Gas

Chesapeake Energy

said on Thursday that, as had been expected, it has slightly cut over 500 million cubic feet a day in natural gas production. It went on to reiterate that it intends to eventually cut 1 billion cubic feet a day if the prices remain low. CHK spokesman Jim Gipson confirmed as much when he said, “We will go to the previously stated 1 billion cubic feet a day if market conditions warrant.” According to

, CHK's actions caused the price of natural gas to jump on Thursday. Natural gas futures in fact moved up 4 cents, or 1.4 percent, to $2.48 per 1,000 cubic feet in New York. Earlier on Thursday, prices surged by over 5 percent after CHK investor relations senior VP Jeffrey Mobley said that the company was going to be increasing the production cuts beyond what was announced last month. The government had reported earlier on Thursday that natural gas supplies had fallen by 78 billion cubic feet last week, which is less than analysts had expected. Still, supply levels remain approximately 33 percent higher than the five-year average. "Perhaps this won't be the end," PFGBest analyst Phil Flynn told the Associated Press. "If prices stay low, maybe they'll drop production even more."

revealed that it is then growing use of new drilling techniques and hydrolic fracturing methods that has resulted in a boom in natural gas production and brought prices down from nearly $1.4 a million British thermal unites, back in July 2008.

says that the current U.S. gas market price, sitting near the bottom of a ten-year price chart, is in part due to one of the warmest U.S. winters in decades. Combine that fact with years of non-stop drilling in prolific natural gas shale areas, and it's easy to see why the current price is what it is. This could all result in additional near-term downside for natural gas futures prices, but the longer-term outlook suggests that natural gas could offer incredible opportunities for traders. Some stability would be welcome, as many investors would agree that the natural gas market is prone to incredibly impulsive price swings, I can't really tell you for sure what will happen with 2012 gas prices,” said Mobley at the Credit Suisse Energy Summit on Thursday. “I do know that we'll finish the storage season at about 4 TCF of gas. But, then, the reset function happens, and by the -- late this year, you'll have a supply picture that's much more moderated in growth. You'll have a demand scenario that's much more robust as consumers take advantage of the opportunity to lock in decade-low gas prices.” In other words, Mobley expects gas prices to provide the stability that investors crave this year. In response, Jefferies said in its Friday research report that it believes curtailments are a response to excess storage volumes, rather than a solution for low gas prices. Curtailments will be short-term (weeks, a month?) and will be restored as soon as practical (early summer). The supply response we want to see is a multi-year decline in volumes. Deutsche Bank noted that too much supply and not enough demand have taken a toll on U.S. gas prices, while J.P. Morgan downgraded CHK to Underweight from Neutral, saying that its opinions about the company's sizable 2012 funding gap are not new but it thinks that there are a few 2012 catalysts that will help the stock outperform. Sterne Agee increased estimates through 2012 based on company-released data.