Building on its acquisitions of Vine Energy Inc. and Chief E&D Holdings LP, the leaders of Chesapeake Energy Corp. are focusing the Oklahoma City-based company solely on its natural gas holdings in Marcellus and Haynesville basins.
“We believe that we will be a better company if we focus all of our resources, both capital and human, on the Marcellus and Haynesville,” president and chief executive officer Nick Dell’Osso told analysts Aug. 3, saying the “super high quality of the Vine and Chief assets” has made now a good time for Chesapeake to divest its Eagle Ford oil-focused assets (OGJ Online, Aug. 11, 2021).
Dell’Osso and his team announced their Eagle Ford sale plans – which activist investment firm Kimmeridge said in May it had began pushing Chesapeake to do – along with their second-quarter results, which showed that Chesapeake produced a net profit of more than $1.2 billion on total revenues of $3.5 billion (OGJ Online, May 5, 2022). Those numbers are up from a loss of $439 million and $693 million, respectively, in second-quarter 2021, the first full reporting period after it emerged from Chapter 11 (OGJ Online, July 6, 2020).
Chesapeake’s portfolio in the two gas-focused basins spans about 1 million acres and produces about 3.5 bcfd. The company drilled 21 wells in the Marcellus and 17 in the Haynesville during the second quarter and expects to finish 2022 having drilled 150-170 wells in all.
Executives expect to maintain their Marcellus market share while steadily growing Haynesville production. In the latter, Chesapeake added a sixth rig and plans to add another by yearend. That, they say, will put them in a position to grow Haynesville production 5-7% in 2023. To reflect those plans and inflation in equipment and services, Chesapeake lifted its forecast for 2022 capital spending by 15% to $1.75-1.95 billion.
Eagle Ford exit
Speaking to analysts, Dell’Osso said he is in no big hurry to finalize Chesapeake’s exit from the Eagle Ford, where it produced 88,000 boe/d in the second quarter. Because the company’s assets in the basin are in both the South Texas and Brazos Valley regions, he said getting the most money for shareholders could call for multiple transactions over time.
“Our strong financial position and balance sheet and the exceptional cash flow generated out of these assets allow us to be prudent in our approach,” Dell’Osso said. “This just will not be a fire sale.”
The move to get out of the Eagle Ford comes after a few quarters of Dell’Osso and his team committing to the region with the aim of drilling 45-65 wells this year and exploring the potential to add output from the Austin Chalk area. Late last year, Dell’Osso called Chesapeake’s work in the Eagle Ford “long-term programs that we feel really good about” but also kept the door open to switching gears on the future of those assets.
With news that it is preparing to exit the Eagle Ford, Chesapeake will take its rig count to three from five by end August and plans to take out another rig by yearend.
Shares of Chesapeake (Ticker: CHK) were up 2% to about $92 on the afternoon of Aug. 3. Shares have climbed about 35% over the past 6 months, growing the company’s market capitalization to nearly $12 billion.