Chesapeake Energy expects to rise from Chapter 11 as low-cost gas producer

• Bill Holland 02 Feb 2021 spglobal.com

Highlights

Three rigs in Pennsylvania

Two-three rigs in the Haynesville Shale

After shedding billions of dollars of debt in bankruptcy court, Chesapeake Energy will emerge from Chapter 11 reorganization in February as a high-volume, low-cost natural gas producer with little drilling planned on its shale oil leases this year, according to its new investor presentation.

Almost two-thirds of that gas, just over 1.1 Bcf/d, will come from the Oklahoma City-headquartered producer's operations in northeast Pennsylvania's Marcellus Shale, according to the presentation. The bulk of the remaining gas will come from Gulf Coast operations, predominately in the Haynesville Shale in Texas and Louisiana.

In 2021, Chesapeake will keep three rigs running in Pennsylvania and two to three rigs drilling in the Haynesville, the company said. Chesapeake will keep one rig drilling in Texas' Eagle Ford Shale 50% of the time. No rigs will be assigned to the shale oil plays of central Texas' Brazos Valley and Wyoming's Powder River Basin.

The 2021 rig plan contrasted sharply with the 18 rigs Chesapeake operated in 2019 before filing for bankruptcy protection June 28, 2020.

"We have fundamentally reset our business and are eager to emerge from our restructuring as a highly competitive enterprise which will deliver sustainable free cash flow and meet our pledge to achieve net-zero direct [greenhouse gas] emissions by 2035," Chesapeake President and CEO Doug Lawler said Feb. 1.

Chesapeake said it has renegotiated its midstream contracts across all of its basins to reduce minimum volume commitments and firm transportation obligations.

"In addition to the previously announced Haynesville agreement with [Williams], Chesapeake has been busy renegotiating contracts in other basins," energy data company Enverus analyst Tyler Hoge told clients.

"Appalachia will see reduced [firm transportation] commitments, South Texas and Brazos Valley will be rid of certain minimum volume commitments, and the Powder River will have a four-year [proved developed producing] minimum volume commitment — all of which the company says will help reduce gathering, processing and transportation by 20% on a $/boe basis and boost contract savings by $2.1 billion," Enverus said.