Dearly Beloved, we are gathered here today in a requiem for natural gas profitability. After a long and debilitating illness, conditions worsened over the last week as vital signs fell to a 10-year, sub-$3 low.

Commodity profitability expired peacefully midweek.

Left to cherish the life of natural gas profitability are a bereaved group of international joint venture partners, U.S. publicly held, shale-focused independents, and the well stimulation industry, which faces the double tragedy of a flood of onrushing capacity in a market that will need fewer completion stages by the thousands.

Survivors include the Majors, who presumably have pockets deep enough to outlast a multiyear glut (assuming all the hype about the immortality of shale gas production is true), and a handful of MLPs.

Collapsing natural gas prices finally generated the inflection point everyone has anticipated since 2009 with assists from a warmer than normal winter, rising natural gas production, and no clear visibility on any increase in natural gas demand. Unfortunately, the specific inflection point people had been anticipating -- a decline in gas production on falling gas-directed rig count -- never materialized. Rather, the opposite occurred. Falling gas-directed rig count failed to impact steadily rising gas production, which is how the industry to the present inflection point: a need to rationalize production via pricing.

Look, you know it’s bad when America’s champion of natural gas is no longer championing natural gas. Chesapeake is joining the small -- but growing -- list of operators who plan to curtail drilling in dry gas basins.

Chesapeake Energy Corp. is accelerating its shift to oil-directed drilling. The company’s rig count is split roughly 50/50 between the two commodities in 2012, a far cry from the 80/20 bias towards gas one year ago. The company plans to reduce gas-directed drilling another 24 units by June 2012.

The Oklahoma City-based firm announced during the weekend that it plans to cut two-dozen rigs out of its gas-directed rig count in the next six months as the company shaves its natural gas drilling budget, net of drilling carries, to $900 million in 2012, a whopping 70% drop from the $3.1 billion expended in 2011.

Those monies, and a lot of those rigs, will rotate to the company’s liquids-oriented efforts as the Oklahoma-City independent seeks to move liquids production from 110,000 Boe/d currently to 250,000 Boe/d by 2015.

Chesapeake is cutting rig count in both the Haynesville and Barnett shales to six units each, and will reduce operated rigs in the Marcellus shale in northeastern Pennsylvania to 12 operated rigs. This compares to 30 rigs at the beginning of 2011 in the Haynesville, 18 in the Barnett shale and 25 in the Marcellus. When complete, Chesapeake will have reduced drilling in its major dry gas basins from 74 rigs at the beginning of 2011 to 24 rigs within an 18-month period with most of the cuts occurring after October 2011.

When finished, Chesapeake will have reduced drilling in its major dry gas basins by 50 rigs. Sharp reductions have already begun in the Haynesville, and will follow in the Marcellus and Barnett shales.

Impacts on specific regions are measurable. Numerically, it amounts to reducing Bradford County, Pennsylvania rig count to 17 units. The county previously led all Pennsylvania counties in gas drilling, peaking at more than 30 rigs active in the first half of 2011. That activity was down to 23 units in early 2012. With the Chesapeake announcement, Bradford rig count will fall another six units by mid-2012 and possibly lose five additional rigs, since Talisman Energy also plans 2012 reductions in Marcellus spending as it cuts rig employment from 11 units in 2011 to six in 2012.

Chesapeake completed 217 Marcellus wells in the first half of 2011, according to the Pennsylvania Department of Environmental Protection, while Talisman completed 199 Marcellus gas wells during the same period.

In the Haynesville, Chesapeake only had 11 rigs active in the four core Louisiana parishes as of Friday, Jan. 20, 2012. The largest impact will be on DeSoto Parish, where Chesapeake began the year with 20 units active but had just 7 rigs turning to the right last week. DeSoto Parish has seen rig count drop from 58 units in early 2011 to 20 currently.

Much of Chesapeake’s cut back is already in the market. The company’s overall Haynesville rig count fell from 30 units in early 2011 to 11 currently and will fall five additional units, according to the company’s announcement. After peaking at more than 100 rigs active one year ago, the core Louisiana Haynesville has seen rig count fall to 46 units active as of Friday, Jan. 20, 2012.

While long overdue, Chesapeake’s effort to cut 24 units out of the gas-directed rig count is a modest event. Gas-directed rig count has fallen by 119 units since Oct. 1, 2011, according to the Hart Unconventional Activity Tracker. Specifically, horizontal and directional gas-directed rig count fell by 112 units, while conventional vertical gas-directed drilling is only off seven units during that period.

Clearly, operators have focused on cutbacks in unconventional gas-directed drilling during the last 90 days. However, domestic rig count and gas production appear to have decoupled in recent years thanks to the enormous flush production in shale plays.

Not that Chesapeake is going to reduce overall rig count. Rather the company is transferring rigs and capital to liquids rich plays in the Permian Basin, Eagle Ford, Granite Wash, Utica shale and Niobrara.

The decision most likely to impact the domestic gas situation positively is Chesapeake’s intent to shut in 500 MMcfed in production, or 8% of its daily output. The company says it could double shut in production to 1 Bcf/d, if warranted.

Chesapeake currently accounts for 9% of U.S. daily gas production. The company increased daily gas production from 2.1 to 6.3 Bcf/d during the last five years and claims it was responsible for 30% of the increase in domestic gas production during that era. Much of that increase originates from strong production volume growth in the Haynesville and Barnett shales, which Chesapeake says accounts for “virtually all” of the nation’s 14 Bcf/d gain during the last half decade.

But in an industry where gas production is growing at a pace of 4 or 6 Bcf/d year-over-year, it will take awhile to alter the narrative of “too much gas.” Ironically, the only way for the market to come into balance quickly is if Chesapeake simply reduces its 6.2 Bcf/d in gas production to zero.