Chesapeake Energy Corp. on Wednesday joined the chorus of operators planning to cut back this year in response to falling commodity prices and investors’ call for continuing financial discipline, announcing plans to reduce capital expenditures by lowering its rig count.
The producer, which has shifted to an oiler production mix in recent years as natural gas prices stagnated, said it expects to run an average of 14 rigs in 2019 versus its current level of 18.
“Further, we expect our capital efficiency to improve in 2019 as total net capital per rig line is projected to decrease by 15-20% compared to 2018,” CEO Doug Lawler said. “The improvement in our capital efficiency, along with our focus on our high-margin oil investments, should result in higher operating cash flow and stronger margins in 2019 compared to 2018.”
Several Permian Basin operators have announced plans to cut their spending and Chesapeake’s announcement came shortly after Appalachian pure-play Antero Resources Corp. said it would lower its budget in response to sliding oil and natural gas liquids prices.
Chesapeake stopped short of releasing additional details, indicating it plans to discuss capital guidance later this quarter. For now, the Oklahoma City-based producer estimates that 4Q2018 production was 462,000-464,000 boe/d, versus 4Q2017’s 593,200 boe/d and 3Q2018’s 537,000 boe/d8.
Under Lawler, the company has been on a cost-cutting binge, dumping well over a quarter of its assets in recent years and eliminating billions of dollars of debt through the divestitures, including the $2 billion sale of its Utica Shale assets in Ohio last year. Total debt was reduced by $1.8 billion from year-end 2017 to finish 2018 at $8.2 billion.
The divested Utica oil volumes, which accounted for 10% of the company’s third quarter oil production, were replaced by oil volume growth in the Powder River Basin (PRB) of Wyoming and the Eagle Ford Shale of South Texas in the two months after the sale closed. Fourth quarter oil production is estimated to be in the range of 86,000-87,000 b/d.
In the PRB, where Chesapeake is running five rigs in the Turner formation, a tight sands oil play, the company achieved a 2018 production exit rate of 38,500 boe/d.
The Eagle Ford, meanwhile, continued to deliver the highest margins. The combination of strong well performance, greater volumes transported via pipeline instead of trucks and new field technologies resulted in net production averaging 105,000 boe/d during the fourth quarter.
Hundreds of miles to the northeast of the Eagle Ford, where Chesapeake is waiting to close its acquisition of East Texas-focused WildHorse Resource Development Corp., the company said it plans to run four rigs this year targeting the Upper Eagle Ford Shale and Austin Chalk formations.
In the Appalachian Basin, Chesapeake said its Marcellus Shale assets continue to generate free cash flow. In Northeast Pennsylvania, the company brought on two monster wells in the lower Marcellus. The Joeguswa 4HC in Sullivan County, completed with a lateral length of 13,803 feet, set a 24-hour initial production record of 62.6 MMcf/d. That was bested by another nearby well, the Joeguswa 5HC, which had a 24-hour initial production rate of 73.4 MMcf/d. The company attributed the results to better spacing, longer laterals and improved steering within the target zone.