Chesapeake plans production cut of nearly 20%

Feb. 21, 2024
Chesapeake will focus on building up to 1 bcfd of reserve capacity; ‘The market is pretty clearly telling us it doesn’t need our gas today.’

In the face of sliding natural gas prices, Chesapeake Energy Corp., Oklahoma City, is slashing 2024 capital spending and forecasting full-year production from Haynesville and Marcellus assets to a level nearly 20% below the rate at which it ended 2023. 

Chesapeake plans to drop a rig in both of its operating areas—down to three in the Marcellus and four in the Haynesville—and release one frac crew in each basin (from two to one). The planned $1.3 billion in capex (give or take $50 million) is targeting drilling 95-115 wells and the turning in line of 30-40 wells. In 2023, those numbers were 193 and 166, respectively.

The goal is to trim spending and defer putting wells into production with market prices this low but only to a level that will position Chesapeake to have 1 bcfd in reserve production capacity by end-2024.

“The market is pretty clearly telling us it doesn’t need our gas today,” president and chief executive officer Nick Dell’Osso told analysts on a conference call following the company's fourth-quarter earnings release.

Total net production from Chesapeake’s assets totaled 3.43 bcfed in the fourth quarter (when the company sold its last Eagle Ford assets) and was 3.66 bcfed for the full year. Executives’ 2024 forecast is for that number to fall to 2.7 bcfd, with a little more than 1.5 bcfd of that coming from the Marcellus.

Dell’Osso said the team considered reducing 2024 spending more but decided against it because additional spending cuts would further reduce Chesapeake’s potential production in 2025, when broader demands trends are expected to improve and the market’s current oversupply will have faded somewhat. Dell’Osso said cuts in spending typically take 12-18 months to show up in terms of lower supply.

The price of natural gas for March delivery, which had been nearly cut in half since mid-January, surged more than 10% on Chesapeake’s announcement. Analysts at Mizuho Securities noted that trying to time natural gas price swings “is a risky strategy at best” but added that Chesapeake’s footprint and financial strength make it “uniquely positioned to deliver” on the strategy it has outlined.

Shares of Chesapeake (Ticker: CHK) rose on the company’s earnings report and guidance. In midday trading Feb. 21, shares were changing hands around $82, up nearly 6% on the day. Over the past 6 months, however, they are still down about 5%, which has left the company’s market capitalization around $10.7 billion.