Chesapeake Energy to reduce Haynesville, Marcellus rig count following Southwestern natural gas megadeal

February 21, 2024

(WO) – Chesapeake Energy announced that it is lowering prior capital expenditure guidance approximately 20% to $1.25 – $1.35 billion through rig count reductions and deferring completions and turn-in-lines in its 2024 outlook report.

Chesapeake is currently operating nine rigs (five in the Haynesville and four in the Marcellus) and four frac crews (two in each basin). Given current market dynamics, the company plans to defer placing wells on production while reducing rig and completion activity.

The company will drop a rig in Haynesville and Marcellus in March and around mid-year, respectively, and a frac crew in each basin in March. These activity levels will be maintained through the year’s end. Deferring new well production and completion activity will build short-cycle, capital efficient productive capacity which can be activated when consumer demand requires it. The company expects to drill 95 to 115 wells and place 30 to 40 wells on production in 2024.

Chesapeake announced earlier this month the signing of its first LNG Sale and Purchase Agreements (SPA) which represents two long-term SPAs for LNG. Under the SPAs, Chesapeake will purchase approximately 0.5 million MMtpa of LNG from Delfin LNG at a Henry Hub linked price with a targeted contract start date in 2028.

Chesapeake will then deliver the LNG to Gunvor on an FOB basis with the sales price linked to the Japan Korea Marker for a period of 20 years. These volumes represent 0.5 MMtpa of to the previously announced up to 2 MMtpa HOA with Gunvor.

2023 highlights. Chesapeake's net production in the Q4 2023 was approximately 3.43 Bcfd (approximately 98% natural gas and 2% total liquids), utilizing an average of nine rigs to drill 45 wells and place 52 wells on production.

For the full year 2023, the company produced approximately 3.66  Bcfd (approximately 95% natural gas and 5% total liquids), utilizing an average of 11 rigs to drill 193 wells and place 166 wells on production.

Nick Dell'Osso, Chesapeake's President and Chief Executive Officer, said, "2023 marked another year of strong operational performance for Chesapeake as we delivered approximately $840 million to shareholders via our capital return framework despite a challenging commodity price environment. Our 2024 operating plan is designed to prudently respond to today's market, further demonstrating our continued focus on capital discipline, operational efficiency, and free cash flow generation to consistently deliver through all demand cycles.”

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

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