McClendon: Energy's renegade mouths off on prices

Nobody can say Aubrey McClendon isn’t compelling.
Love him or hate him, the energy renegade from Oklahoma appears to be one of the few speakers willing to make bold statements this year at CERAWeek.
While many CEOs and consultants have hedged their comments and seem somewhat chastened by low prices, tough credit and an unclear path to economic recovery, Chesapeake’s Chairman told reporters he was fine with natural gas prices being $5 per thousand cubic feet but said it will probably take between $8 and $9 per mcf to incentivize producers to meet demand once the economy makes a comeback.
“We only need gas prices to be ‘good’ for three to six months out of every two-year period,” he said. “Then we’d be happy for them to fall to benefit consumers and affect our competitors.”
I asked McClendon to expand on his statement from this morning when he said: “We believe in volatility.” Everybody else here seems to be wishing and hoping for price stability. And, as one commenter pointed out, volatility was not McClendon’s friend this fall when margin calls wiped out a vast amount of his wealth, knocking him off the Forbes billionaires list in one day.
McClendon seems unfazed.
“You can sell volatility. Volatility has value,” he said. “Our company makes additional money when we sell those calls. Volatility also constrains investment. There would be lots more capital flowing into these discoveries if producers knew there would be a steady, stable price for gas.”
So McClendon really just wants others to be nervous enough about prices to stay away from shale. He predicts 2009 will be the tell-tale year for producers and says low prices will force a thinning of the ranks of independents.
“I think we’ll see close to a two-thirds reduction in rig count due to low prices and access to credit which is very tight, especially for non-public exploration and production companies,” he says.
To hear McClendon tell it, laying down that many rigs should result in slashing in half the industry’s ability to explore for more natural gas and a 10 percent decline in production for the year, correcting the huge overhang of gas in the market and boosting the price by next winter.