Chesapeake curtailments, efficiency lead to trimming of capex forecast

Chesapeake Energy Corp., Oklahoma City, finished June with 29 drilled but uncompleted wells and 46 wells it has not yet turned in line, an inventory that has the company on pace to meet its year-end target of holding 1 bcfd of production in reserve.

Speaking to analysts and investors on a July 30 conference call, president and chief executive officer Nick Dell’Osso said his team would further curtail its development work if natural gas prices slip further.

“We’re totally prepared and willing and ready to do [that] if the market ends up showing […] us that it’s necessary,” Dell’Osso said, after earlier telling analysts that Chesapeake’s leaders will “continue to be prudent with how we manage our volumes and our capital program and we are happy to be building the DUCs and [deferred TILs] that we are now because it gives us a lot of operational flexibility.”

Chesapeake’s production cuts in the face of low natural gas prices—which began early this year (OGJ Online, Feb. 21, 2024) and accelerated in the spring (OGJ Online, May 1, 2024)—as well as drilling efficiency improvements allowed Dell’Osso to say that his team has lowered its 2024 capital spending forecast by $50 million, or about 4%, to roughly $1.25 billion. Similarly, production expenses are now on track to be 8% lower than Chesapeake’s previous guidance.

Second-quarter production from Chesapeake’s assets in the Marcellus (three rigs) and Haynesville (four rigs) totaled 2.75 bcfd versus 3.20 bcfd in the first quarter and 3.4 bcfd in late 2023. Management is planning for output to fall to 2.62 bcfd in the current quarter and just 2.27 bcfd in in this year's fourth quarter. The drop is unlikely to lead to dropped rigs, said Josh Viets, chief operating officer. 

“It’s really about just monitoring the setup for 2025 before we would decide to adjust activity levels any further,” Viets said.

The second quarter’s lower output and lower natural gas prices translated into a $227 million net loss for Chesapeake compared to a year-ago profit of $391 million. Total revenues fell to $505 million from nearly $1.9 billion a year earlier.

Shares of Chesapeake (Ticker: CHK) slipped to $76.24 on the heels of the company’s report on the morning of July 30. Over the past  6 months, shares are essentially flat, which has left the company’s market capitalization at $10 billion.