Chesapeake Energy will be slowing drilling for 2023 amid a sustained plunge in natural gas prices, with other operators following suit in the American shale patch. On Wednesday, Chesapeake said it would be pulling out three rigs this year, including two in the Haynesville shale and one in the Marcellus shale. Reuters cited Chesapeake CEO Nick Dell’Ossa as saying that it is “prudent” at this time to “pull back capital”, and warning that others appear to be of the same mind in Louisiana and east Texas. "We're making money on the capital that we are investing but the margins are not nearly on a full cycle basis what they were historically," he added, Reuters reported. For Chesapeake, the announcement that it will cut back on natural gas rigs comes as the company agrees to sell its South Texas oil assets to INEOS for $1.4 billion.
On Tuesday, the U.S. benchmark natural gas price plunged by as much as 10% to its lowest level since September 2020 amid lower demand caused by milder winter weather conditions.
After Tuesday’s slump, the gas price at the Henry Hub fell to a low of $2.043 per million British thermal units (MMBtu) early on Wednesday, before paring some of those additional losses later in the day. At 10:53 a.m. EST on Wednesday, Henry Hub prices were trading up 5.74% at 2.192; however, this is not enough to make up for a nearly 50% drop in prices since last summer.
Oversupply is now driving lower prices and leading operators such as Chesapeake to pull back on rigs. In February, Comstock Resources Inc, an operator in the Haynesville Shale, said it would drop two of its nine natural gas rigs in the region, citing the plunge in natural gas prices. “In 2023, we will continue to derisk and delineate our western Haynesville play with a two-rig program in 2023 and we are managing our drilling activity to levels to prudently respond to the lower gas price environment we’ve had so far this year,” CEO Jay Allison said during a Q4 earnings call.
By Tom Kool for Oilprice.com
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