SHREVEPORT, Louisiana – Chesapeake Energy Corp. plans to reduce natural gas production in the Haynesville Shale as the industry faces a gas supply glut and weak global demand.
The Oklahoma City-based E&P is currently operating seven drilling rigs in the gas-rich Haynesville region. By next week, that number is slated to fall to six drilling rigs, said David Eudey, Chesapeake’s vice president of Haynesville operations, at the DUG Haynesville conference on March 29.
The company plans to further reduce drilling activity down to five rigs during the third quarter.
Chesapeake typically needs to run six drilling rigs and two frac crews in order to maintain flat production in the Haynesville. Eudey said production is expected to fall under the planned five-rig drilling program later this year and into 2024.
“We think the market is telling us that it doesn’t need as much gas here in the near term,” Eudey said. “We’re going to intentionally let production fall some this year and into next year before we re-ramp and grow again into that LNG demand coming in 2025 and beyond.”
Looking ahead to future demand for liquefied natural gas projects in development along the Gulf Coast, Chesapeake is bullish on the Haynesville Shale’s role in the global LNG sector.
“The long-term outlook for natural gas, and specifically to Haynesville that will feed a lot of this is very rosy,” Eudey said.
RELATED
Toby Rice: EQT has Considered Developing Its Own East Coast LNG Project
Gassy goals
Chesapeake is prioritizing natural gas production and being LNG-ready when demand picks up from Gulf Coast liquefaction terminals.
As the company assessed its portfolio over the past few years, Chesapeake saw that its best assets were in the Haynesville and the Marcellus, Eudey said.
“We like gas a lot. We think it has a lot of tailwinds for us,” Eudey said. “But the strategy is not just gas – the strategy is premier assets.”
To that end, Chesapeake is offloading oily assets that no longer align with its strategy, like the company’s sizable position in the Eagle Ford Shale in South Texas.
During the first quarter, Chesapeake has lined up two divestitures totaling nearly $3 billion to sell a considerable portion of its Eagle Ford acreage.
But the company still has approximately 21,000 bbl/d of oil and NGL production and 80 MMcf/d of natural gas production remaining in the Eagle Ford, including acreage in the Austin Chalk. The company is actively engaging with potential buyers interested in its remaining Eagle Ford acreage.
RELATED
Public, Private E&Ps Split on Permian Basin Drilling Strategies
Price slump
While long-term outlooks for U.S. upstream gas are bullish, operators and analysts are bearish in the near-term.
Several operators in gas-rich basins, from large, publicly traded E&Ps to smaller, privately held drillers, are working to keep production flat and reduce rig activity.
After averaging $6.42/MMBtu in 2022, Henry Hub gas prices are expected to average around $3/MMBtu this year, according to the latest forecasts by the U.S. Energy Information Administration.
U.S. natural gas futures for April delivery were trading down around 2.4% at $1.98/MMBtu in the late afternoon on March 29.
The months-long outage at Freeport LNG following an explosion and fire last summer, as well as a warmer-than-expected winter season, have contributed to weak gas demand.
Chesapeake believes it will take time for prices to rise again.
“We think it will be 2025-ish time period before we start to see a nice rebound in prices,” Eudey said. “Maybe at the end of ’24, but we really think probably ’25.”
RELATED
Haynesville to Lead Gas Production Growth in 2023
Recommended Reading
US Gulf Coast Heavy Crude Oil Prices Firm as Supplies Tighten
2024-04-10 - Pushing up heavy crude prices are falling oil exports from Mexico, the potential for resumption of sanctions on Venezuelan crude, the imminent startup of a Canadian pipeline and continued output cuts by OPEC+.
US Could Release More SPR Oil to Keep Gas Prices Low, Senior White House Adviser Says
2024-04-16 - White House senior adviser John Podesta stopped short of saying there would be a release from the Strategic Petroleum Reserve any time soon at an industry conference on April 16.
Oil Broadly Steady After Surprise US Crude Stock Drop
2024-03-21 - Stockpiles unexpectedly declined by 2 MMbbl to 445 MMbbl in the week ended March 15, as exports rose and refiners continued to increase activity.
What's Affecting Oil Prices This Week? (April 22, 2024)
2024-04-22 - Stratas Advisors predict that despite geopolitical tensions, the oil supply will not be disrupted, even with the U.S. House of Representatives inserting sanctions on Iran’s oil exports.
What's Affecting Oil Prices This Week? (March 25, 2024)
2024-03-25 - On average, Stratas Advisors are forecasting that oil supply will be at a deficit of 840,000 bbl/d in 2024.