October 8, 2024

Chesapeake to Cut Number of Gas Rigs

The announcement was not unexpected, and it followed a trend that has been under way for several months: oil and gas companies have been transferring drilling rigs to oil fields from natural gas fields. But given that Chesapeake has been the industry’s most public champion of natural gas, its announcement of an 8 percent cut in daily production led to a substantial rally in gas prices that had fallen last week to their lowest level in a decade.

Natural gas prices have been steadily falling over the last two years because of a glut stemming from mushrooming production in shale fields like the Haynesville in Louisiana, the Barnett in Texas and the Marcellus in Pennsylvania. Warm weather so far this winter has also cut normal seasonal demand significantly.

Aubrey K. McClendon, Chesapeake’s chief executive, said in a statement, “We have committed to cut our dry gas drilling to bare minimum levels.”

The company, based in Oklahoma City, said it would reallocate its investments from natural gas drilling to fields that are rich in oil and other hydrocarbon liquids like ethane, butane and propane, which are used as feedstocks for refining gasoline, diesel, heating and petrochemicals. Those fields are mainly in Ohio, Texas, Oklahoma and Wyoming.

Oil prices have remained strong the last two years because of instability in the Middle East and North Africa and growing demand in China and other developing countries. Since natural gas is not easily exported, prices in the United States are not tied to natural gas prices in Europe and Asia, which are still high.

Chesapeake, which has been responsible for almost a tenth of national gas output, said it would cut spending on drilling gas wells to $900 million in 2012 from $3.1 billion last year. The company said it would idle half of its drilling rigs in the next several months in fields that produce gas but no oil or hydrocarbon liquids.

The announcement showed that the oil industry does not know what to do with all the gas it is able to produce in shale fields, which were considered almost useless until a decade ago when new production techniques, including horizontal drilling and hydraulic fracturing, were first employed in a major way.

“This is a sign that the low price of gas has changed expectations for at least the next three to five years,” said Michael C. Lynch, president of Strategic Energy Economic Research, a consultancy. “If they thought the price would recover in a year or so, they would keep drilling.”

The Energy Department released a report on Monday predicting that shale gas production would increase to 13.6 trillion cubic feet in 2035, or 49 percent of total domestic natural production, from 5 trillion cubic feet in 2010, or 23 percent.

Gas futures contracts on the New York Mercantile Exchange rallied by almost 8 percent on Monday. Chesapeake shares rose by $1.32 to close at $22.28.

Halliburton, a leading service provider to oil and gas producers, warned last week that the slump in natural gas drilling could cause disruptions in its first-quarter operations and earnings. But the company said it expected that the shift to oil drilling from gas would not hurt its earnings over the year.

“We are very optimistic about 2012 and fully expect that North American revenue and operating income will increase over 2011,” said Dave J. Lesar, Halliburton’s chief executive, in a conference call.

Article source: http://feeds.nytimes.com/click.phdo?i=10da312dcde9aea402d4f70be194f922

Warm Winter Is Bad News for Retailers

Winter is here, but the cold weather by and large is not. Nationally, last month was one of the warmest Decembers on record, and so far January temperatures are above average, according to Planalytics, a research firm that tracks weather’s effect on businesses.

The relatively warm weather is erasing a lot of demand for winter hats, coats, and gloves — and making some retailers sweat the bottom line.

On Saturday, the outdoors store REI took the unusual step of making artificial snow in a Manhattan park, hoping to encourage people to buy snowshoes and winter jackets. Home Depot has cut down on items like salt for de-icing, and many of its stores have replaced snow removal equipment with storage products in storefront displays.

Even drugstores are being affected because flu infections are down. The higher temperatures have “helped slow the incidents of flu compared to last year,” Deborah Weinswig, an analyst for Citigroup, wrote in a note to clients. Walgreen’s, for instance, has given 5.3 million flu shots this season, it said this month, compared with six million a year ago.

Though some winter resorts received a sprinkling of snow over the weekend, and Seattle is having a snowstorm, those pockets of cold have not provided much of a salve for retailers, who are running out of time to sell their winter inventory. In the ever-confusing retail calendar (the one where Christmas sales start in late October), spring begins on Feb. 1, leaving stores with just a few weeks to sell all their cold-weather gear.

Planalytics said that demand for boots in December was down about 20 percent from a year ago, according to its data, while demand for snow-removal gear declined 70 percent in the second week of January from that week last year.

Kevin Scott, senior vice president for merchandising services at Home Depot, said there has been an upside to the warmer weather — outdoor paint, outdoor lights and windows are selling well — but “we’ll take a little more snow, I think, as anybody would.”

Unlike merchandise pegged to Christmas or back-to-school shopping tied to the calendar, cold-weather gear is bought mostly when it is needed. And retail reports from December suggest relatively few people see the need.

For December, Kohl’s had “sluggish sales in cold-weather categories.” The discount chain Fred’s said it was “affected significantly by unseasonably warm weather throughout the month” of December. Stage Stores reported “our cold weather initiative was not as successful as anticipated due to the negative impact from warm weather.”

Bon-Ton reported that “cold-weather categories, which are highly profitable and represent approximately 25 percent of our business in December, were down midteens on a percentage basis.” The TJX Companies, the parent of T. J. Maxx and Marshalls, decided to “clear cold weather apparel in this unseasonably warm winter.”

Scott Jaeger, an analyst with the Leisure Trends Group, a market research firm, said that while overall sales in 2011 had risen 8 percent, sales of outdoor gear in December fell 2 percent from the previous December. “This year they can get outside and enjoy things without having to buy the insulated coat,” he said of shoppers. “They didn’t need hats and mittens. They didn’t have to update the wardrobe or update the skis, because they were not necessarily going skiing.”

Some retailers are strategizing on how to make the best of the predicament.

“We’re pushing things like cold-weather camping, mountaineering, trail running, as well as road cycling, mountain biking,” said Jill Layfield, chief executive of Backcountry.com, an online retailer.

She said that after several winters of unpredictable temperatures, Backcountry had decided to bring in more all-weather sports items. Still, she said, she brought in lots of snow-sport items, because “premium selection, having it in stock, is critical to meeting the standards of service that our customers expect. We always bet big, then we adjust course.”

This year, Ms. Layfield said, Backcountry was starting with offers of free shipping and “bounce back” offers (like a gift certificate when customers return to Backcountry) around winter gear, and soon would move to discounts. “The time we can break price, and the industry breaks price, is anywhere from early February to April, depending on the category,” she said. “I think that will get moved up, if there’s not a change here soon, by maybe a couple weeks.”

On Saturday, REI spread artificial snow over a Manhattan park so passers-by could try cross-country skiing and snowshoeing. The store also held an ice sculpture contest. Luckily, Saturday was one of the few days this winter that reached freezing in the city.

“We plan for a solid winter,” said Tim Spangler, senior vice president for retail at REI. “We often joke that planners in our business are paid to be wrong: you either bought too little, because the winter overperforms, or you bought too much, because it’s warm.”

Mr. Spangler said possible solutions included “promotions, markdowns, moving inventory around to other parts of the country where it’s selling quicker.”

That last tactic is a little harder this year, he said. “I wish I could tell you there’s one area in the country that’s really, really cold and it would make sense to move everything there,” he said. “Outside of Anchorage, Alaska, there’s not.”

Article source: http://feeds.nytimes.com/click.phdo?i=df3be2c25e8f70d8961f61f2a2f038a5