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Chesapeake Puts 1 Bcf/d of Production on Hold

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Chesapeake Energy (CHK) will pull back on drilling and starting new wells in response to low natural gas prices. CHK is one of several producers indicating plans to slow gas output, prompting East Daley Analytics to revise our Haynesville supply forecast.  

In the company’s 4Q23 earnings call, CHK said it will defer turning on new wells in its operating areas in the Northeast and Haynesville, putting ~1 Bcf/d of potential production on hold by 4Q24. The producer will also limit the number of turned-in-line wells (TILs) to 30-40 for the year, after already starting 25 TILs in January and February, executives said. 

The large number of new producing wells from CHK would help explain why East Daley’s Haynesville gas sample has been on the rise in 2024 despite falling gas prices. East Daley’s ArkLaTex Basin sample for February gained 487 MMcf/d over January (the January flows were skewed by freeze-offs) and rose 354 MMcf/d over December ’23 flows. 

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Chesapeake also guided to a slowdown in drilling and well completions. The producer plans to drop a rig and frac crew from both the Northeast and ArkLaTex. The changes are expected to reduce 2024 capital spend by nearly 20% and lower production by ~15%, executives said, while maintaining productive capacity at around 1.18 Bcf/d in the Haynesville. CHK expects to see a ~30% decline in quarterly volumes from 4Q23 to 4Q24. 

Southwestern Energy (SWN) did not provide 2024 guidance due to the pending merger with Chesapeake. In its 4Q23 earnings, SWN said its Haynesville production averaged ~1.6 Bcf/d, down slightly from full-year production of 1.74 Bcf/d. SWN reported 13 drilled but uncompleted wells (DUCs) at YE23. We expect SWN to follow CHK’s lead in 2024 and possibly drop a rig or two and defer completions until gas prices rebound.   

East Daley counts 5 CHK rigs in the Haynesville, including 2 rigs on Williams’ (WMB) Louisiana/Magnolia system and 3 on Energy Transfer’s (ET) Enable Haynesville system. We also count 8 SWN rigs in the Haynesville as of February 23, split 5-3 between DT Midstream’s (DTM) Blue Union and ET’s Enable systems.  

Comstock Resources (CRK) is also responding to low prices. CRK ran 7 rigs through February but expects to drop to 5 rigs for the rest of 2024. The producer said it will release the 2 rigs from its core Haynesville acreage this month. CRK had previously planned to use 7 rigs this year. Comstock expects to see a 6-7 month lag between activity reduction and production, with volumes flat in 1H24 and declining in 2H24. 

EDA’s latest ArkLaTex Basin Supply and Demand Forecast, released prior to the latest producer guidance, models flat Haynesville gas production through August 2024 and expects producers to add rigs back starting in June ’24 (see gray line in figure). We are revising our outlook lower for 2024 rigs and production given the latest guidance. We now forecast Haynesville gas production to average 16 Bcf/d in 2024, reaching a low in December 2024 of 15.3 Bcf/d (see yellow line in figure). - Oren Pilant  Tickers: CHK, CRK, DTM, ET, SWN, WMB. 



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