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February 22, 2024
By
ZeroHedge
Chesapeake's
Production Cut Shakes Up Natural Gas Markets
- Chesapeake Energy plans to reduce drilling rigs and completion
activity to curtail production, aiming to address oversupply and
boost short-cycle productive capacity.
- NatGas prices have plummeted due to factors including an
unseasonably warm winter, increased shale production, and elevated
stockpiles, prompting Chesapeake's move to stabilize prices.
- Analysts suggest that Chesapeake's action could prompt other
producers to follow suit, potentially leading to a turnaround in
NatGas prices, though production remains a bearish risk in the
near term.
With US
natural gas prices crashing to lows not seen since early Covid in
recent days, around $1.60 per million British thermal units, major
shale producer Chesapeake Energy
announced
in a Tuesday earnings report that it would decrease the number of
drilling rigs to reduce production this year. As a result, NatGas
futures soared.
This followed
news from Chesapeake:
Chesapeake
is currently operating nine rigs (five in the Haynesville and four in
the Marcellus) and four frac crews (two in each basin).
Given current market dynamics,
the company plans to defer placing wells on
production while reducing rig and completion activity.
The company will drop a rig in the Haynesville
and Marcellus in March and around mid-year, respectively, and a frac
crew in each basin in March.
These activity levels will be maintained through year end. Deferring
new well production and completion activity will build short-cycle,
capital efficient productive capacity which can be activated when
consumer demand requires it. The company expects to drill 95 to 115
wells and place 30 to 40 wells on production in 2024.
NatGas prices
have collapsed over the past year due to an unseasonably warm winter
produced by El Nino, which led to sliding demand for the heating fuel,
as well as shale drillers that ramped up production and left
stockpiles well above average levels for this time of the year.
"The
Chesapeake news of lowering production has set the tone that natural
gas prices have become too low," said Dennis Kissler, senior vice
president for trading at BOK Financial Securities.
Kissler
explained: "More producers could follow, which is needed to clean up
excess supplies."
In a recent
note, Goldman's Samantha Dart told clients: "Solving oversupply in
2024 sets the stage for a bullish 2025." She expects prices to bottom
this year and trend higher into 2025.
However, Dart
added one caveat to her call: "Production remains a bearish risk to
2024 and could derail our bullish 2025 view."
And prepare
for more drillers to announce rig cuts in hopes to bottom prices.
Green Play Ammonia™, Yielder® NFuel Energy.
Spokane, Washington. 99212
509 995 1879
Cell, Pacific Time Zone.
General office:
509-254
6854
4501 East Trent
Ave.
Spokane, WA 99212
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