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Chesapeake Energy Cuts Back on Natural Gas Production.

ENERGY RESOURCE-2 March 2009-Chesapeake Energy Cuts Back on Natural Gas Production(C)2009 JeraOne -

Chesapeake Energy Corporation today said it will curtail approximately 240 million cubic feet of natural gas equivalent (mmcfe) per day of its gross natural gas and oil production due to currently low wellhead prices in the mid-Continent region.

Chesapeake has curtailed approximately 200 million cubic feet per day of gross natural gas production and approximately 6,000 barrels per day of gross oil production for at least the month of March 2009.

The curtailed production represents approximately 7% of Chesapeake's current gross operated production capacity. Additionally, the company is considering a further 10% reduction in its drilling activity during 2009 if natural gas and oil prices remain low during the next few months. The company said its "attractive hedges and cash availability" provide it with the operational and financial flexibility to curtail production during periods of unusually low prices, such as the current market environment.

The company believes conditions are developing that will support higher prices for natural gas and oil later this year and in 2010.

The announcement also includes details on the amendment to its Haynesville Shale joint venture agreement with Plains Exploration & Production Company.

On February 20, 2009, Chesapeake and PXP agreed to amend the joint venture agreement in which Chesapeake granted PXP a one-time option to avoid paying the last $800 million of PXP's $1.65 billion drilling carry obligation to Chesapeake, which represents approximately 25% of the original joint venture transaction consideration.

The amendment includes three key features. First, the option may only be exercised by PXP during the two-week period from June 15, 2010 through June 30, 2010. Second, should PXP elect to exercise the option, PXP will be required to convey 50% of all of its Haynesville Shale joint venture assets to Chesapeake as of December 31, 2010, including all investments in leasehold, production and reserves at that date. Chesapeake estimates PXP's investment in the Haynesville Shale assets as of December 31, 2010 will likely range from $3.0 billion to $3.2 billion and believes the value of these assets at that time will be substantially greater than the cost basis.

Third, until December 31, 2010, PXP's obligations to both pay for 50% of Chesapeake's drilling costs in the Haynesville Shale joint venture and participate in each well in which Chesapeake participates remain unchanged and are mandatory.

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Publication:Energy Resource
Date:Mar 2, 2009
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