Chesapeake Gains 24% in Pre-Market Trading After Cutting Budget

By Dan Lonkevich

Dec. 8 (Bloomberg) -- Chesapeake Energy Corp., the second- biggest independent U.S. natural-gas producer, gained 24 percent in pre-market trading after saying it will cut spending and plans to build cash resources because of a plunge in prices.

Chesapeake, based in Oklahoma City, rose to $14.05 as of 8:47 a.m. Before today, the shares had fallen 71 percent this year. Gas futures have dropped 59 percent from a high of $13.694 per million British thermal units this year on the New York Mercantile Exchange. Gas fell 1.5 percent to $5.655 today.

Chesapeake said yesterday it will cut its 2009 and 2010 capital spending by a combined $2.9 billion, or 31 percent. It also reduced its leasehold and producing-property acquisition budget for the two years by a combined $2.2 billion, or 78 percent. Since July 31, the company said it has reduced spending by $9.8 billion.

“The plan is to live within their means, which is what investors were looking for,” Jason Gammel, an analyst at Macquarie Bank Ltd. in New York, said in an interview. Gammel rates Chesapeake shares “outperform” and doesn’t own any.

Devon Energy Corp. is the largest U.S. independent oil and gas producer. Independent producers are those without refining assets.

(Chesapeake’s conference call to discuss its plans started at 9 a.m. New York time. To listen, dial +1-913-312-1236 or +1- 888-211-7383 and enter passcode 1193464.)

To contact the reporter on this story: Dan Lonkevich in New York at dlonkevich@bloomberg.net