Efficiencies Help US E&Ps Navigate Dismal Gas Market

Copyright © 2024 Energy Intelligence Group

Published: Fri, Aug 2, 2024

Authors Caroline Evans, Houston Everett Wheeler, Washington

Editor Mark Davidson

Independent US gas producers pinched by continually low commodity prices are looking to efficiencies to extract more gas while paying less for drilling and completion work.

Oklahoma-based Chesapeake Energy said this week it would lower its full-year capital budget by $50 million to a range of $1.2 billion-1.3 billion, largely due to efficiencies and cost deflation. And CEO Nick Dell’Osso told analysts he believed the savings could stick.

“Lowering breakeven costs is critical to delivering sustainable value to our shareholders and ensuring the market remains well supplied with affordable natural gas,” Dell’Osso said during the company’s second-quarter earnings call. “We expect the majority of savings recognized will be durable through cycles, which will only continue to improve the strength and competitiveness of our Marcellus and Haynesville [Shale] positions.”

Dell’Osso also credited the shorter drilling times with a better-than-expected drilled-but-uncompleted (DUC) well count, which the company plans to bring on line when higher prices can be sustained.

The efficiency gains were a bright spot in a dismal earnings report that saw revenues, income and production drop as gas prices continued to weaken with little relief in sight until at least early 2025.

Testing Tailwinds

On its Marcellus assets in Pennsylvania, Chesapeake said it had seen a 50% improvement in drilling performance since 2022. That was achieved by “steadily increasing” the number of feet drilled per day by half and growing the average lateral length new wells by nearly 3,000 feet, Dell’Osso told analysts.

In the Haynesville play of Louisiana, Chesapeake has cut per-barrel water disposal costs by 25% since the third quarter of last year by optimizing routes, increasing the use of owned assets, partnering with vendors, and deflation.

Chief Operating Officer Josh Viets said the company anticipates additional uplift from more recent moves in the Haynesville, including the use of insulated pipe and chillers to help manage well and drilling mud temperatures and optimizing hole sizing.

“We continue to find new opportunities to improve our operations, and we're really starting to see those results show up,” Viets said. “So we really think that provides some tailwinds. In addition to that, as we're exiting ‘24 into ’25, we’re looking at opportunities to change the way in which we source sand in the Haynesville, which we think will also provide additional tailwind as we head into next year.”

Horseshoes and Holidays

Appalachian pure play Antero Resources also touted completion efficiencies, as well as strong well performance, which it said was behind its decision to slightly raise its gas production guidance for 2024. “These faster completion times have reduced our cycle times to approximately 140 days in 2024, a dramatic reduction of 67% from just five years ago,” CEO Paul Rady said.

But Haynesville producer Comstock Resources did not witness the savings Antero and Chesapeake did. COO Daniel Harrison said the company saw a 36% increase in per-foot drilling costs over the first quarter, but those were largely due to “significant drilling difficulties” at one well. Meanwhile, completions costs rose 1%.

Comstock is also targeting efficiencies through longer laterals and is taking an innovative tack: The company is currently at work drilling one of the play’s first “horseshoe” wells, which have a U-shaped lateral that can target more pay in a smaller space.

Harrison told analysts that the horseshoe scheme consists of drilling two 10,000 foot laterals from a single two-well pad for $32 million, compared with an earlier $40 million development using four 5,000 foot laterals drilled from two well pads.

In addition to improving the economics, the horseshoe wells provide other benefits, such as reducing the company’s surface footprint and lowering emissions from fewer wellbores, Harrison said.

Meanwhile, the operators are also waiting out the bear market by deferring completions until it can sell that output at better pricing. Chesapeake is on track to build up to 1 billion cubic feet per day of deferred production capacity — a large chunk of output it says will stay off line until demand signals improve and higher prices can be sustained.

The plan revolves around deferred completions and delaying the turn-in-line (TIL) of wells to sales. Chesapeake’s deferred TIL count stood at 46 at the end of the second quarter, with the number of DUC wells at 29. It plans to continue growing those figures through the end of the year, with 80 deferred TILs and 35 DUCs planned through the fourth quarter.

Chesapeake also has not ruled out curtailing gas production later this year, something it resorted to in the spring as prices sank. Antero also plans to defer TIL of a DUC pad until the end of the year, “given current natural gas pricing,” Rady said.

Comstock hasn’t disclosed plans to defer TILs, but said it had temporarily released one of its two working completions crews at the beginning of July for a planned two-month gap, a short hiatus known in the industry as a “frack holiday.”

“I don't really see it extending further into [the fourth quarter], just based on what we know today, where we see prices going,” Harrison said.