Chesapeake Energy Corp. said Wednesday it would continue to curtail natural gas output until demand rebounds, forecasting another 400 MMcf/d of cuts in the second quarter.
The company first announced the cuts in February and said they would mostly come by not turning wells in progress to sales. Chesapeake curbed 200 MMcf/d of output during the first quarter and expects cuts to be lower as the year progresses and its inventory of drilled but uncompleted (DUC) wells and deferred turn-in-lines (TIL) grows.
At the end of the first quarter, Chesapeake had 50 DUCs, or twice its normal average at current rig counts. It also had 22 deferred TILs at the end of the period.
“The market is pretty clearly oversupplied,” said CEO Nick Dell’Osso on Wednesday during a call to discuss first quarter results. But he added that he was surprised by how quickly other operators have cut volumes.
Domestic gas production has finally trended below 100 Bcf/d more consistently. Wood Mackenzie estimates showed it at 97.1 Bcf/d on Wednesday, down by about 700 MMcf/d from Tuesday.
“When we think about the macro trends here more broadly, I do think that decline you’re seeing is ultimately real,” Dell’Osso said. “I think it has been accelerated with curtailments.”
Rig counts in places such as the Haynesville Shale, which are half of what they were during recent production highs, are likely to continue driving down volumes, he said.
“All of that is quite encouraging,” Dell’Osso added. “We’re also still very encouraged by what we see in the way of demand growth, certainly through LNG exports, which we all talk about quite a bit, but also through consumer, industrial, as well as power generation” demand.
Chesapeake already dropped a rig in the Haynesville earlier this year and plans to drop another in the Marcellus Shale in the coming months.
Marcellus production is expected to slide from 1.7 Bcf/d in the first quarter to 1.55 Bcf/d in the second quarter. Chesapeake’s Haynesville production is expected to drop from 1.45 Bcf/d in the first quarter to 1.12 Bcf/d in the second quarter.
U.S. gas prices have traded below $2/MMBtu most of the year, briefly rising above that point earlier this week before falling back below it amid weak liquefied natural gas demand.
Spot prices in both of Chesapeake’s operational areas have also been subdued. NGI’s Carthage index in the Haynesville traded at an average of $1.410 on Tuesday, while NGI’s Columbia Gas index in Appalachia traded at an average of $1.460.
Dell’Osso said the company’s curtailment strategy would leave it well-positioned for when demand rebounds, which management expects later this year. The cuts would position the company to have up to 1 Bcf/d of flexible, spare production ready to match an increase in demand.
Chesapeake produced 3.20 Bcf/d in the first quarter, down slightly from the year-ago period when it produced 3.7 Bcf/d.
The company reported first quarter net income of $26 million (18 cents/share), compared to net income of $1.4 billion ($9.60) in the year-ago period, when commodity prices and revenues were higher.
Chesapeake’s average realized first quarter prices, including derivatives, were $2.85/Mcfe, compared to $3.45 in 1Q2023.
