Chesapeake to trim development, spending by a third in 2H23

Aug. 2, 2023  Geert De Lombaerde  www.ogj.com 

Chesapeake's second-quarter 2023 production topped forecasts by about 6%.

Chesapeake Energy Corp., Oklahoma City, plans to drill 30-40 wells in this year's third quarter, down from 53 in the spring, and will spend about a third less on development work in second-half 2023.

President and chief executive officer Nick Dell’Osso, who has been cautious about an oversupplied natural gas market since late last year, plans to remain ‘patient and prudent’ with Chesapeake’s drilling activities (OGJ Online, Feb. 22, 2023). For now, that means running four rigs in the Marcellus, five in the Haynesville, and none in the Eagle Ford for the rest of the year. For both the Marcellus and Haynesville, those numbers are down one from June 30 and one below what the Chesapeake team would consider a typical sustaining capital spending level.

Chesapeake produced nearly 3.7 bcfd in the second quarter, topping the midpoint of its leaders’ forecast by about 6%. Year to date, production has averaged nearly 3.9 bcfd, down almost 2% from 2022 levels. The company expects third-quarter production of 3.4-3.5 bcfed with natural gas production of 3.3-3.4 bcfd.

The company’s curtailed development plans mean capital spending is expected to drop to $370-420 million in the third quarter, a decline from $505 million in this year's second quarter and $544 million in the first 3 months of this year. Management’s guidance implies that fourth-quarter 2023 capex will be around $355 million.

On an Aug. 2 conference call with analysts, Dell’Osso voiced optimism that macroeconomic conditions will improve in the coming quarters and push up demand. But he added that the Chesapeake team isn’t prepared to bet big trying to anticipate that uptick.

“We’ll let the market show us,” he said. “We don’t expect to be way out front of a move like that.”

In the 3 months ended June 30, Chesapeake produced a net profit of $391 million on revenues of nearly $1.9 billion. Those numbers were down from $1.2 billion and $3.5 billion, respectively, in second-quarter 2022, when natural gas prices were nearly four times higher. Operating profits for second-quarter 2023 were $517 million versus $1.3 billion last year.

Chesapeake’s profitability will get a lift in coming quarters from falling operating costs, which have already come down as 2023 has progressed. Dell’Osso and his team expect drilling and fracturing cost decreases to help produce total service cost deflation of 5-7% by first-quarter 2024.

Shares of Chesapeake (Ticker: CHK) were down nearly 3% to $82.15 in midday trading Aug. 2. So far this year, they have slipped about 5%, trimming the company’s market capitalization to about $11.3 billion.