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Chesapeake Energy stops drilling in Marcellus, Utica shales

| Wednesday, Feb. 24, 2016, 1:39 p.m.
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A Marcellus shale gas well owned by Chesapeake Energy Corp. in Bradford County

The biggest shale gas producer in Pennsylvania has stopped drilling in the Marcellus and Utica shales and is planning for less activity in 2016 as it sells off wells and land.

Oklahoma City-based Chesapeake Energy Corp. said Wednesday it has signed agreements to divest $700 million in gas fields and other assets and plans to sell another $500 million to $1 billion in properties this year while shutting down at least half the drilling rigs it has under contract.

The company released the single rig it was operating in Northeast Pennsylvania's Marcellus and the two that were exploring the Utica in Eastern Ohio. Its shale gas production in Pennsylvania fell 14 percent last year compared with 2014, though it remained the top producer, state records show.

Chesapeake, which also operates in Texas, Louisiana, Oklahoma and Wyoming, expects its companywide production for 2016 to remain flat or fall by as much as 5 percent. The company is slashing its capital spending plan for this year in half, to between $1.3 billion and $1.8 billion, and will spend most of that money on bringing online wells it previously drilled.

“We are also renegotiating gathering, transportation and processing contracts to better align with our current development plans and market conditions, aggressively working to minimize the decline of our base production and making shorter-cycle investments with our 2016 capital program,” CEO Doug Lawler said in announcing its most recent financial results, which included a 2015 net loss of $14.9 billion on revenue that fell by half from the previous year.

A 40 percent drop in gas prices over the past year stung Chesapeake particularly hard with its heavy debt load. The company said it will pay off the remainder of a half-billion-dollar debt that's coming due in three weeks after raising more than twice as much as planned from asset sales.

The company's shares closed up 22 percent to $2.68.

Chesapeake, which pumps more gas than any U.S. producer except Exxon Mobil Corp., has been shrinking its workforce, restructuring debt, closing offices and selling parts of its portfolio to raise cash. The most recent asset sales may ease concern among bondholders and analysts about Chesapeake's ability to manage a debt burden described this month by Standard & Poor's as “unsustainable.”

The deals being negotiated range in size from $10 million to $500 million each, Lawler said during a conference call with analysts and investors.

Chesapeake swung to a fourth-quarter net loss of $2.2 billion, or $3.36 a share, compared with a profit of $639 million, or 81 cents per share, a year earlier, according to the statement.

The precipitous decline in energy prices prompted the company to write down $2.83 billion in the value of gas fields and other assets during the fourth quarter, bringing Chesapeake's full-year writedowns to $18.2 billion.

In an about-face from former CEO Aubrey McClendon's approach, Chesapeake said it locked in future prices for some of its gas at $2.84 per thousand cubic feet. A portion of its 2016 crude is hedged at $47.79 a barrel, a premium to the current U.S. oil price of around $32.

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