Thursday, April 22, 2010

Hey, Did Someone Say, "Curtail Production?"

It was EnCana.  One of the first companies to report earnings for Q1 2010, EnCana noted that it might curtail some of its natural gas production if prices get too low.  The company is still trying to drive large production increases over the next several years, so this doesn't mean the company will slash its drilling plans.  It's just going to hold back on the flow when and if conditions warrant it.

Not every company can afford to curtail production.  Most need the cash flow and are forced to sell gas into a down market to keep the lights on and the banks happy.  I'm glad there are a few companies out there willing and able to "take one for the team."  EnCana did it last year too.  Chesapeake said it did too, but it poutily changed its mind pretty quickly when few others joined in. 

For long-term thinkers, curtailing production in a low price environment is a winning proposition...assuming gas prices eventually increase.

No comments: