Chesapeake doubling curtailments in second quarter

Chesapeake Corp., Oklahoma City, plans to double its production curtailments to about 400 MMcfd this quarter after turning a small profit in first-quarter 2024 and not seeing prices for its natural gas improve.

The leaders of Chesapeake in February said they were cutting 2024 production by nearly 20% and investing less in capacity while looking to assemble 1 bcfd in reserve production assets (OGJ Online, Feb. 21, 2024). The company added 24 drilled but uncompleted wells— more than the expected 15 and lifting its DUC inventory to 50—and 22 deferred turn-in-lines during the first quarter.

President and chief executive officer Nick Dell’Osso and his team plan to finish 2024 with about 35 DUCs and 80 deferred TILs.

“That activity deferral results in decline that occurs over a period of time,” Dell’Osso told analysts on a May 1 conference call. “The curtailments that we saw occur in the end of Q1 and into Q2 are really about accelerating that decline. We don’t need to keep that base volume curtailed throughout the year as the activity deferrals show up in […] what I would call actual decline. But we have a lot of flexibility in what we choose to deliver to market.”

Net natural gas production at Chesapeake averaged 3.20 bcfed during the quarter, down from 3.4 bcfed in fourth-quarter 2023 and more than 3.6 bcfed in early 2023. Its management team is forecasting a second-quarter 2024 range of 2.62 bcfd-2.72 bcfd, which is close to where it also still expects full-year numbers to land.

The company’s teams used an average of nine rigs during the period to drill 28 wells and place on production 29 others. Total capital spending was $354 million for the quarter, a 35% drop from the same period last year. Plans call for a one-rig drop in the Marcellus this quarter, which will leave Chesapeake with three rigs in the area as well as four in the Haynesville.

Chesapeake booked $26 million in net income during the first quarter, down from nearly $1.4 billion in the prior-year period, as revenues fell to $1.08 billion from nearly $3.4 billion. The company’s average sales price per Mcf of natural gas from both its Marcellus and Haynesville operations fell to $2.03; a year ago, those numbers were $3.47 for the Marcellus and $2.88 for the Haynesville.

Shares of Chesapeake (Ticker: CHK) were down about 4% to $86.40 in midday trading May 1 after the earnings report. Shares are essentially flat over the past 6 months, leaving the company’s market capitalization at about $11.3 billion.