It appears no sector of the economy is immune from the credit crunch. The Wall Street Journal reported over the weekend that luxury goods and services are taking a hit (a slowdown in plastic surgery, quelle horreur!). Natural gas producers are also seeing the impact.
From Platts (hat tip reader Michael):
Chesapeake Energy CEO Aubrey McClendon said Tuesday he would not besurprised if US drillers dropped hundreds of rigs in the next couple of quarters due to lower natural gas prices.
“It wouldn’t surprise me if from 200 to 400 rigs were to come out of the rig count over the next six months,” McClendon …. “I expect [the dropping of rigs] to be forthcoming.”
Chesapeake on Monday said this week it would cut capital spending by $3.2 billion in the next 10 quarters and trim its drilling rig count because of falling natural gas prices.
McClendon said gas prices that hovered in the $13s/Mcf range in the first half of 2008 yielded good returns on drilling and production, and “in that world you can run up to 2,000 rigs profitably.”
However, “in the world of the last 60 days of $7/Mcf and change to $8/Mcf and change, I just don’t think the cash is there to support that kind of drilling activity, and the credit crunch won’t be favorable to companies that have to borrow a bunch of money to support drilling activity,” he said…
McClendon added he expects to see service costs go down in tandem with less rigs working. “If we lose a couple of hundred rigs in the next couple of months, that will help,” he said.