The oil and gas business is a funny one. With the exception of behemoths like Chevron (NYSE:CVX) and BP (NYSE:BP), production growth is pretty much a given for most exploration and production companies. For a drilling dynamo like Chesapeake Energy (NYSE:CHK) to hold production flat from quarter to quarter actually takes some serious effort! That's exactly the outcome we see in the company's first-quarter results.

Granted, daily output rose 3% sequentially after adjusting for curtailments and various asset monetizations, but there it is: 213 billion cubic feet equivalent of total production in the period, just as in the fourth quarter.

Am I disappointed in this plodding production performance? Not at all! As outlined a few weeks back, Chesapeake's curtailments are enhancing value for shareholders. Unless you believe that sub-$4 natural gas prices are here to stay, the decision to leave reserves in the ground for future exploitation is a wise one.

On its conference call, Chesapeake identified a few factors that make production deferral all the more compelling. One is that service costs are dropping at a nice clip. Well costs in the Barnett and Fayetteville shale have fallen 13% and 14%, respectively, from their September-March averages. Costs are down even more dramatically in Chesapeake's other two big-time shale plays, which are less mature. These costs should continue to drop, both enhancing Chesapeake's future rates of return and stretching the firm's drilling carries by partners including Plains Exploration & Production (NYSE:PXP) and StatoilHydro (NYSE:STO) by some 30%.

Also critical is the extremely high rate of first-year production decline in some of these overpressured gas plays. In the Haynesville shale, the most dramatic case, Chesapeake pegs the rate at 86%. That's a big reason why I've chastised Petrohawk (NYSE:HK) for going full-throttle in this play. Then again, Chesapeake is no slouch in this reasonably high-rate-of-return play, with 24 rigs running (ramping to 36 on average in 2010).

Chesapeake is an Inside Value selection, and StatoilHydro is an Income Investor pick. Drill down on any of our Foolish newsletters free for 30 days.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.