As it continues to transform into an oil-focused producer, Chesapeake Energy Corp. plans to run only three rigs on its natural gas assets in the second half of the year, following gains during the first quarter on newly acquired Eagle Ford Shale properties and record-setting results in the Powder River Basin (PRB).
CEO Robert Lawler said the company has “rapidly integrated” Upper Eagle Ford assets in East Texas acquired in February from the purchase of WildHorse Resource Development Corp. Faster drilling and completion methods in the area have cut average costs by $500,000/well and by up to $1 million on some individual wells.
“When we took over the assets on Feb. 1, the majority of the rigs were working in the gas window of the Austin Chalk, we have now altered course, transferring all four rigs to the oil window in the Eagle Ford, which we expect will result in our oil volumes picking up speed in or around the third quarter,” said exploration and production chief Frank Patterson during a first quarter earnings call on Wednesday with financial analysts.
The company also plans to shift capital from the Marcellus Shale and the Midcontinent to the PRB, where it’s been increasingly focused. Chesapeake will drop from three to two rigs in the Marcellus, from two to one in the Haynesville Shale, and it has already dropped its only rig in the Midcontinent. A rig has been added in Wyoming’s PRB, where Chesapeake is now running six rigs focused on the Turner formation, a tight sands oil play.
“That rig began drilling the Turner formation this week, and will transition to the Niobrara later in the year,” Patterson said of the new rig added in the PRB. Management, he said of the Niobrara, believes “longer laterals and enhanced completions will unlock the full value of this play that underlies the majority of our leasehold.”
Average net production from the PRB during the first quarter was 36,000 boe/d, including 16,000 bbl of oil. The company set a new production record on May 1, churning out 42,000 boe/d. Chesapeake also said an oil well there set a record, with peak production of 4,000 boe/d.
Meanwhile, the core Eagle Ford assets in South Texas continued to generate free cash flow through steady oil production. In all, the company plans to run 14 rigs on its oilier assets through the remainder of the year. Oil is expected to account for about one-quarter of overall production by the fourth quarter.
The company produced 484,000 boe/d during the first quarter, consisting of 109,000 b/d of oil, 2.023 Bcf/d of natural gas and 39,000 b/d of liquids. That compares to 554,000 boe/d at the same time last year before the company sold assets in the Midcontinent and Utica Shale, and the 464,000 boe/d it produced in 4Q2018.
Outperforming wells in the Marcellus helped the company beat Wall Street’s first quarter consensus on production. Chesapeake notched a record gross production level of 2.5 Bcf/d in Pennsylvania in January, resulting in average net Marcellus production of 948 MMcf/d during the first quarter.
Chesapeake reported a net loss of $44 million (minus 3 cents/share), compared with a net loss of $6 million (minus 1 cent) in the year-ago period. Revenue was down slightly to $2.2 billion from $2.5 billion over the same time. The company converted to a different accounting method for the period, which impacted results. Under its previous accounting method, first quarter net income would have come in at $156 million (11 cents/share).
In personnel news, Chesapeake operations chief Jason Pigott has been named Laredo Petroleum Inc.’s next CEO. Pigott had served as executive vice president of operations for Chesapeake and has held several positions since in 2013. Pigott takes the helm at Laredo later this year.