Chesapeake Energy Corp. signaled Tuesday that it would continue to curb natural gas output until prices improve under a plan that was announced earlier this year.
“In the fall, we will be disciplined and activate the deferred capacity with market conditions dictating the pace and timing of our approach,” said CEO Nick Dell’Osso during the company’s second quarter earnings call. “We are confident this strategy will provide a distinct competitive advantage when natural gas demand recovers, given the inherent flexibility it provides and the speed and limited capital needed to bring volumes to market.”
Chesapeake said in February as natural gas prices spiraled that it would significantly slash spending and natural gas production in the Haynesville and Marcellus shales, mainly by delaying bringing wells online and completing them. The activity cuts again prompted the company this week to slash its capital guidance by $50 million to a range of $1.2-1.3 billion.
At the end of the second quarter, Chesapeake had 29 drilled but uncompleted wells and 46 wells that it had not turned to sales. It also significantly cut production output in the spring when prices fell further. While those volumes have returned, management said Tuesday that it would curtail volumes again in a similar situation.
COO Josh Viets said he doesn’t expect Chesapeake to bring a significant number of wells online for the remainder of the year. The company produced 2.75 Bcfe/d during the second quarter, down from 3.7 Bcfe/d in the year-ago period.
Viets said volumes are likely to fall 17% from second quarter levels through 4Q2024.
“That equates to a little over half a Bcf a day of capacity, dampened demand and capacity coming offline from our operated production,” he said.
The New York Mercantile Exchange futures contract has hovered below $3/MMBtu for most of the year and close to $2 for most of July. Meanwhile, NGI’s Carthage spot index in the Haynesville Shale and its Columbia Gas spot index in Appalachia have remained well below $2 over the same time.
Chesapeake’s plans would position the company to have up to 1 Bcf/d of flexible, spare production ready to come back online as prices firm, but at what level is unclear.
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NGI’s Forward Look shows Henry Hub spot prices rising above $3 this winter and remaining there next summer as more power and liquefied natural gas demand comes online.
Dell’Osso also indicated that the company’s pending acquisition of Southwestern Energy Co., which would create the largest U.S. natural gas producer, has slipped from mid-year as it works its way through the regulatory process.
"We are using the extended time between signing and closing to focus on our integration planning efforts and on delivering the synergies identified at the announcement of the merger, which we expect to close in the back half of the year."
Chesapeake reported a second quarter net loss of $227 million (minus $1.73/share) that was tied to its operations and derivatives. That was down from net income of $391 million ($2.73) in the year-ago period.
Revenue slid to $505 million from $1.9 billion over the same time. Average realized prices, including derivatives, also fell to $2.51/Mcfe, compared to $2.67 in 2Q2023.
