Chesapeake Energy Corporation (NYSE:CHK) CEO Doug Lawler announced that oil production from Eagle Ford Shale in South Texas may drop in the current quarter, which will end a string of increases, says a report from The Wall Street Journal. The CEO added that the company is selling off some of its producing wells, and that rain has affected a few activities, which raised the question of the company’s growth prospects.
Production to drop for Chesapeake
Newly appointed CEO Lawler said that production may see some hikes next year despite a drop-off at Eagle Ford, but did not made it clear if the increase would be absolute or after taking into consideration sales of oil and gas wells.
Investors, as well as analysts, were in shock after hearing the news. Mike Kelly, an analyst at Global Hunter Securities commented, “There’s some confusion on what growth is going to look like.”
Previously, the company has invested billions of dollars more than it could afford, but now it is resorting to cost-cutting as it spent 45% less to drill wells in the third quarter than in the previous year’s period. However, the oil production of the company surged 23% raking in profits of $202 million for the company.
Other hurdles in growth
Chesapeake Energy Corporation (NYSE:CHK) received a subpoena in September from the Michigan attorney general’s office concerning a plausible breach of the state’s criminal-solicitation law. Since then, the company has been answering inquiries from Michigan and U.S. authorities regarding the possible antitrust violation. Michigan landowners alleged that the company conspired with Encana Corp to keep the drilling-lease cost undercover.
However, in their respective inquiries both companies claimed that they did not violate any antitrust laws. A spokesman at Chesapeake said, “Because Chesapeake is in the process of responding to the ongoing inquiry, it would not be appropriate to comment further at this time.”
Lawler follows conservative spending strategy
Lawler will go by the strategy that follows spending only what company brings in. Also, production will be ramped up by drilling the best prospects, and less profitable properties will be allowed to expire. Lawler states that Chesapeake Energy Corporation (NYSE:CHK) is changing its strategy to ensure that all of the company’s earnings are directed towards the best returns possible.
Chesapeake Energy Corporation (NYSE:CHK) has never been short on growth even in the time of its previous boss, co-founder Aubrey McClendon, who had the company buy drilling rights for shale-rock formations across the U.S., making Chesapeake the second-largest producer of natural gas after ExxonMobil Corp.
Shares of Chesapeake declined 6.8% following the news to close at $26.23 on the New York Stock Exchange.
