Natgas-Bagging: Chesapeake’s Choking Back Haynesville Growth for Now

Chesapeake Energy Corp. isn’t looking to grow its 1.6 Bcf/d of Haynesville natural gas output in the near term as it waits for more pipe and LNG trains, it reported to investors this week.

“As export capacity doesn’t begin to increase until at least 2024, we’re setting up our near-term [Haynesville] volumes to be relatively flat and to begin to ramp slowly as we approach 2024,” Nick Dell’Osso, president and CEO, said during the 4.1-Bcfe/d U.S. gas producer’s third-quarter earnings call.

Chesapeake has six rigs drilling the Haynesville and plans to add a seventh by month’s end. Otherwise, “in the near term, we really don’t see any need for growth,” Dell’Osso told RBC Capital Markets research analyst Scott Hanold.

“So, 2023 is probably setting up to be about flat on a year-over-year basis.”

Chesapeake bought Vine Energy Inc. in 2021, adding 658 MMcf/d of Haynesville and Bossier production for $2.2 billion of stock (92%) and cash (8%) per Vine share while Nymex natgas was $2.50/Mcf. 

Blackstone Energy Partners, holding 70% of Vine stock, became a Chesapeake shareholder.

“[Chesapeake Energy is] very well prepared for a weaker gas market as we move into 2023 and don’t know if that will actually happen. But if it does, we’ll be ready for that.”—Nick Dell’Osso, Chesapeake Energy Corp.

While waiting for additional Haynesville gathering, treating and takeaway capacity, “we dropped to five rigs” after the deal.

Takeaway has been coveted in the play as overall natural gas production has grown to 16 Bcf/d from 6 Bcf/d in 2017, according to U.S. Energy Information Administration data.

Since Jan. 7, 2020, when the Nymex strip was $2.32, the rig count has jumped from 52 to 80, according to Enverus data. In contrast, the rig count in Appalachia—a rival U.S. gas play—has grown from 47 to 57 in that timeframe as much of the Marcellus’ growth potential is politically stranded.

The post-Vine slowdown is appearing in this quarter and will be into the next, Dell’Osso said. “That’s all really as expected.”

An uptick will come in late 2023 and into 2024, “right in line with aligning our volumes to [takeaway and LNG] capacity additions.”

At what price would Chesapeake reduce Haynesville activity, Umang Choudhary, an analyst with Goldman Sachs, asked. The Nymex 12-month strip the morning of the earnings call was $5.13. 

“We’re still talking about gas prices at which our company makes a really attractive profit,” Dell’Osso said. Meanwhile, “we’re very well prepared for a weaker gas market as we move into 2023 and don’t know if that will actually happen. But if it does, we’ll be ready for that.”

At a Henry Hub price in the mid- to low $3s, “we’d probably pull back a bit.” 

“I think we still make a good bit of money at that level but it … would give us a reason to step back and think about whether or not activity should come down.” 

Earlier this year, Chesapeake was considering adding an eighth rig in the Haynesville in 2023. Charles Meade, an analyst with Johnson Rice, asked if that’s no longer on the table. 

It’s unlikely now, according to Dell’Osso. “I think I would just call it an ‘option.’” The additional takeaway would need to be ready—as well as LNG demand. 

“I’d love to see us at eight. I’d love to see us at more than that as we get into the second half of the decade,” he said. “We certainly have the inventory and the great assets to justify acceleration when there is demand that’s not being met. 

“But as we sit looking at the market today, we don’t really anticipate that an eighth rig would be needed during 2023. Now, if it turns out that it is needed, then great. We’ll be ready … 

“But right now, we’re not expecting to go to eight in 2023.”

For its third-quarter Haynesville production, Chesapeake received an average of $7.40/Mcf gross.