By Edward McAllister
NEW YORK (Reuters) - Chesapeake Energy reported that natural gas production was almost unchanged in the first quarter of this year compared to late 2011, confirming fears that pledges to cut output have so far failed to stem a flood of supply.
The No. 2 gas producer said it planned to extend the curbs throughout the year to counter a huge gas glut that pushed prices to ten-year lows. It said curtailments would total some 50 billion cubic feet (bcf) for the rest of the year after cutting output by 30 bcf in the first quarter.
Despite curbs imposed in February and March, however, the firm still produced 271 billion cubic feet (bcf) of gas in the quarter versus 272 bcf in the fourth quarter of 2011, bearing out worries that rapid growth in output from new wells would offset any reductions. Production rose from 243 bcf in the same period last year.
Chesapeake was the first driller to cut output this year. Other companies followed, but Chesapeake's curbs accounted for the lion's share, about a tenth of its daily output.
Still, traders have been dubious about whether the curbs would be sufficiently deep, or implemented for long enough, to ease oversupply and bolster prices.
"As a result of reduced drilling activity in 2012 and 2013 on its dry natural gas plays, Chesapeake is projecting a decline in its natural gas productive capacity in 2013 of approximately 12 percent after adjusting for estimated net voluntary production curtailments of approximately 80 bcf in 2012," the company said in its earnings statement.
The curtailments it reported were broadly in line with its January 23 announcement that it would cut gross production by 0.5 billion cubic feet per day (bcfd). By February 21 it had deepened the curtailments to 1 bcfd. But the overall figures show cuts were not as significant as some had hoped.
The company typically owns about 50 percent of a well's production while the other half goes to partners and royalty owners, a Chesapeake spokesman said earlier this year. So net cuts represent about half of the gross cuts announced in January and February. The other half of the curbs are borne by partners in the wells.
According to Reuters calculations based on Chesapeake's public statements, the reduction in the company's own output should have totaled about 27 bcf over the quarter.
"The curtailments may have taken the growth out of their production numbers, so we're still not seeing material declines in the aggregate," said Dan Morrison, senior analyst at Global Hunter Securities in Fort Worth, Texas.
After plunging to a decade low of less than $2 per million British thermal units two weeks ago, prices have rebounded by 25 percent as a late cold snap stoked demand and new government data showed U.S. output fell in February for only the second time in a year.
The earnings come at a difficult time for Chesapeake. Not only have low gas prices crimped profits, but the company said on Tuesday that it will split the jobs of chairman and chief executive, and bring an early end to a program that granted CEO Aubrey McClendon stakes in company wells, an arrangement that sparked investor anger and potentially created serious conflicts of interest.
U.S. gas prices have been sliding since last summer as prolific output from shale gas outpaces demand. A mild winter and record production pushed prices below $2 per million British thermal units last month for the first time since 2002.
Drillers have been frantically moving rigs away from pure gas plays to drill for more lucrative oil and liquids, but that has yet to have a major affect on production.
Top Canadian producer Encana, which announced production cuts of 250 million cubic feet per day in February, said its gas production rose 2 percent to 3.27 billion cubic feet per day for the first quarter, despite its curbs.
Encana said in its earnings last week that a continued reduction is drilling activity is required to bring the market back into balance.
U.S. February natural gas production only fell 0.6 percent from January's record highs, to 72 billion cubic feet, despite cuts announced by Chesapeake, Encana, ConocoPhillips and others.
Sparse pipeline data suggests that output in the Haynesville shale deposit in Louisiana and Texas has indeed fallen this year as rigs are moved to more oily plays, but that gas output remains strong in other regions such as the Marcellus shale in the U.S. Northeast.
(Reporting By Edward McAllister; Editing by Tim Dobbyn)