Chesapeake to reduce rig count as it awaits closing of Southwestern deal

Chesapeake Energy will nix one rig each in Haynesville and Marcellus shale plays

Robert Stewart North America Energy Correspondent | Baton Rouge  Updated 21 February 2024

With a leaner 2024 in mind, Chesapeake Energy will marginally reduce its rig totals in the Haynesville and Marcellus shale plays in the US to shave expenses, the Oklahoma City natural gas producer said Tuesday.

Chesapeake currently operates nine rigs — five in Haynesville and four in Marcellus. Given “market dynamics,” the company plans to drop one rig and one frac crew in each play by midyear, according to its fourth-quarter earnings report. The company will also defer placing wells into production, though it still expects to drill 95 to 115 wells in 2024.

As a result, Chesapeake lowered its 2024 capital expenditure guidance by 20% to $1.25 billion to $1.35 billion, thanks to the rig count reductions and deferred completions.

“These activity levels will be maintained through year end,” Chesapeake said. “Deferring new well production and completion activity will build short-cycle, capital-efficient productive capacity which can be activated when consumer demand requires it.”

Meanwhile, the company’s 2024 production should be between 2.65 billion to 2.75 billion cubic feet per day. It produced 3.43 billion cubic feet equivalent per day in the fourth quarter and 3.66 Bcfepd for the full-year 2023.

The updated production outlook came ahead of Chesapeake’s planned $7.4 billion merger with competitor Southwestern Energy. The deal is expected to close in the second quarter.

Chesapeake chief executive Nick Dell'Osso said the new operating plan is “designed to prudently respond to today's market” for natural gas.

“Our strategic combination with Southwestern will make our future outlook even stronger, extending America's energy reach by positioning us to deliver more reliable, affordable, lower carbon energy to markets in need,” Dell’Osso said.

“We are forming the first US independent that can truly compete on a global scale, redefining the natural gas producer to the benefit of our shareholders and energy consumers alike.”

Chesapeake’s net income for the final three months of 2023 was $569 million, down from $3.58 billion in the same period a year earlier. Fourth quarter 2023 realised natural gas prices were down from the year-earlier quarter.

Its full-year 2023 net income was $2.4 billion, down from $3.58 billion in 2022.

The company outperformed analysts' consensus estimate for adjusted profit, however. Adjusted profit was $1.31 per share in the fourth quarter, better than analysts' average estimate of 73 cents per share, Reuters said, citing LSEG data.

The company had $1.95 billion in revenue during the fourth quarter, down from $4.13 billion in the year-earlier period.

Chesapeake also highlighted a contract, announced earlier this month, that will see it buy 500,000 tonnes per annum of liquefied natural gas from Delfin LNG, a floating terminal off the Louisiana coast, at Henry Hub prices beginning in 2028. Chesapeake will then deliver the LNG to Gunvor at JKM prices over 20 years.