Chesapeake cutting rigs, trimming capex in face of oversupply

With natural gas supplies outpacing demand and winter’s weather running milder than expected, Chesapeake Energy Corp., Oklahoma City, is pulling from the market three of its roughly dozen rigs and slowing its development pace until prices rebound.

Noting Chesapeake’s financial strength and hedging strategy, president and chief executive officer Nick Dell’Osso said his team is pulling two of its fracturing crews this quarter (with plans to bring those back later this year) and will over the course of 2023 reduce its rig count by one in the Marcellus and two in the Haynesville. The company also will run 0.5-1 rig in the Eagle Ford, where it will retain for now some assets after agreeing to sell about 172,000 net acres and roughly 2,300 wells to INEOS for $1.4 billion. (OGJ Online, Feb. 21, 2023)

Dell’Osso talked late last year about a looming oversupply situation and said Chesapeake would not aggressively invest until longer-term natural gas trends began to materially impact the market. On a conference call with analysts, he said Chesapeake ‘is built for the volatility we are experiencing’ and expounded on his theme of near-term caution.

“In the end of ‘24 and into ‘25 is where you start to expect LNG export capacity to expand and so that’s how we’re going to think about what our production profile should do,” Dell’Osso said. “We should be flat to down a little bit because the market is currently oversupplied until that structural demand growth shows up. We will never be perfect [in] timing that. But we do think that there are some long-term trends here that we can plan for.”

The rig reduction and pullback in capital expenditures from more than $1.9 billion in 2022 to about $1.8 billion this year will mean that Chesapeake is on pace to produce about 2% less from the Marcellus and Haynesville. In the first quarter, gas production is expected to be roughly 3.6 bcfd. For the full year, production of 3.4-3.5 bcfd is expected, with the Marcellus accounting for about 54% and the Haynesville 43%.

Chesapeake posted fourth-quarter 2022 profit of $3.5 billion, which included a tax benefit of nearly $1.4 billion, on revenues of $4.1 billion. Operating profits climbed to $2.2 billion during the period versus $1.4 billion in fourth-quarter 2021. Shares of the company (Ticker: CHK) climbed about 2% to $79.70 Feb. 22. They are, however, down about 20% over the past 6 months, which has cut the company’s market capitalization to about $10.7 billion.