“Although we will be slowing some of our drilling and leasehold acquisition activities because of the current 10-year lows in natural gas prices, we will still remain by far the most active driller in the U.S.” McClendon wrote
“We will also continue growing our liquids production and we will be well prepared to resume our gas production growth when gas prices recover.”
McClendon said Chesapeake has overcome many challenges over the past 23 years, but today it is better equipped to deal with such obstacles.
“I firmly believe our best days are ahead of us, he wrote.”
Chesapeake's stock dropped 26 cents Monday after the company disclosed Southeastern's letter in a regulatory filing. It closed at $17.13 a share.
Southeastern wants the company to focus on maximizing its cash flow after capital expenditures, rather than pursuing arbitrary production growth and debt production goals.
“We do not think that managing to an arbitrary target like the ‘25/25 Plan' makes sense,” Southeastern officials wrote.
Announced in January 2011, Chesapeake's 25/25 Plan calls for the company to pay down its long-term debt and increase production — each by 25 percent by the end of 2012.
The letter also offered support for Chesapeake's plan to sell some of its holdings and secure joint ventures in oil-rich plays to raise up to $14 billion this year, while divesting some noncore assets.
“We applaud recent statements by management that the era of large spending on new plays is over,” the letter said.
Southeastern also suggested Chesapeake officials should focus on the company's business over “unproductive communications.”
“Sell-side conferences, media interviews with no hope of a fair hearing and meetings all over the U.S. with groups who may have only a casual interest but don't mind hearing the ‘story' use valuable amounts of top management's time with no apparent benefit and plenty of misinterpretation detriment,” the letter said. “Trading volumes highlight that CHK stock has far too many renters and not enough owners.”
A Chesapeake spokesman said the company values Southeastern's insight.
“We appreciated receiving the letter and look forward to further discussions with our largest shareholder in the days and weeks to come,” said Michael Kehs, Chesapeake's vice president of strategic affairs and public relations.