Chesapeake Energy Corp. said Tuesday it would further slash spending on its natural gas assets next year and redirect that capital toward plays in Texas and Wyoming, which are expected to drive double-digit growth in the company’s oil production.

Once a natural gas juggernaut, the company has in recent years shifted capital to higher margin oil drilling and away from natural gas in a push to transform its production profile. Driven by growth in the Powder River Basin (PRB), newly acquired assets in the Upper Eagle Ford Shale and Austin Chalk formation in East Texas, as well as improved base production from the Eagle Ford of South Texas and the Midcontinent, the company produced the most oil in its history during the second quarter.

Given those gains and the downturn in gas prices, the company is pulling back on its drier properties. Next year’s natural gas production is expected to fall by double digits compared to this year’s volumes. While low breakeven prices and steady free cash flow from its Marcellus Shale assets in Pennsylvania will keep it running two rigs, Chesapeake expects to drop its sole rig in Louisiana’s Haynesville Shale in the coming weeks and let production decline.

The company has already dropped its only rig in the Midcontinent and has no plans to bring any wells online in the region for the rest of the year.

Going forward, CEO Doug Lawler said the company would primarily be focused on base production from the Eagle Ford and growth in the PRB and Brazos Valley, which includes assets in East Texas acquired with the purchase of WildHorse Resource Development Corp.

“That leaves us with the Haynesville, which given current pricing and the flexibility that we have, we will react accordingly,” Lawler said. “We have reduced activity there substantially and forecast a very low activity level with current pricing.”

While that could change if gas prices bounce back, Lawler said, “the economics and margins that we’re capturing from the oil investment makes it difficult to see a lot of capital going back towards the Haynesville in the near future.”

Chesapeake produced 122,000 b/d of oil in the second quarter, a 36% increase from the year-ago period, which accounted for 25% of its overall production and set a company record. Given the performance, the company raised the mid-point of this year’s oil production guidance by 250,000 bbl. With a 2020 budget that’s expected to be flat with this year’s $2.3-2.5 billion budget, management also said it still expects oil volumes to grow by double-digits.

The Eagle Ford of South Texas continued to drive the oil growth, accounting for the bulk of second quarter production at 58,000 b/d. But PRB oil volumes continued to grow as well during the quarter.

Moreover, about five months after closing the WildHorse acquisition, management said the company remains focused on integrating those assets into the portfolio and transitioning to full development mode. The company has cut spending by $600,000/well and added another 230 locations in the Upper Eagle Ford’s black oil window after learning more about the acreage.

In the PRB of Wyoming, Chesapeake’s primary target remains the Turner formation, a tight sands oil play. But the company also recently completed its first Niobrara well since 2014 in the northern area of the field and expects to test the volatile oil window of the Mowry Shale later this year.

Overall, Chesapeake produced 496,000 boe/d in the second quarter, up from 484,000 boe/d in 1Q2019. Second quarter production was down from 530,000 boe/d in the year-ago period, reflecting asset sales, including the divestiture of its Utica Shale assets in Ohio.

CFO Domenic Dell’Osso, Jr. said the company continues to evaluate selling other acreage, including a small package of assets in northeastern Pennsylvania and some properties in the Brazos Valley where the company currently has no plans to drill.

Chesapeake reported second quarter net income of $75 million (5 cents/share), compared with a net loss of $40 million (minus 4 cents) in the year-ago period. Year/year revenue increased slightly in the second quarter to $2.4 billion from $2.3 billion.