Weak natural gas market resulted in missed profits for Chesapeake Energy

  • May 1, 2024

 

After announcing a planned merger with Southwestern Energy in January, Oklahoma City’s Chesapeake Energy reported first quarter earnings results with lower net income but increased net cash from operating activities. It also confirmed it continues with a reduction in some drilling efforts and because of a weak natural gas market, is expanding efforts to delay putting some wells into production.

Chesapeake said in January it intended to lower its rig count for the remainder of 2024 and reported this week it had $26 million or $0.18 per share in net income, plus $80 million or 56 cents a share in adjusted net income.

It also raised $552 million in net cash by its operating activities and ended up with adjusted EBITDAX of $508 million and $131 million in free cash flow. As a result, Chesapeake plans a quarterly dividend of $0.715 per common share to be paid in June.

While awaiting Federal Trade Commission approval of its merger with Southwestern Energy, Chesapeake had natural gas production of 3.20 bcf/d, a slight decline from the 3.43 bcfe/d net recorded in the fourth quarter of 2023.

The company employed an average of nine rigs to drill 28 wells and put 29 wells into production while building an inventory of 24 drilled but uncompleted or DUCs wells. Another 22 derred turn  in lines. As of this week, Chesapeake stated it was operating eight rigs and two completion crews. But the count is expected to drop by one rig in the Marcellus around mid-year.

The company stated in its release that given continued weak market dynamics, it is executing its previously disclosed plan to defer completions and new well turn in lines, building short-cycle, capital efficient productive capacity which can be activated when supply and demand imbalances correct. At the end of the first quarter the company had 50 DUCs, approximately twice its normal average at current rig counts, and 22 deferred TILs. For the full-year, the company expects to drill 95 – 115 wells and place 30 – 40 wells on production, which is consistent with previous guidance.

Nick Dell’Osso, Chesapeake’s President and Chief Executie Officer said the results show the strength of the companyl’s portfolio and strategy, “further demonstrating that our company was built to withstand demand cycles.”
Chesapeake’s merger with Southwestern Energy, which is now expected to be finalized sometime in the second half of the year, will create one of the largest natural gas production companies in the nation.
” We remain excited about our pending combination with Southwestern which we expect will close in the second half of this year. The merger positions us to expand America’s energy reach to markets that are increasingly turning to natural gas to meet the growing demand for reliable, affordable, lower carbon energy to domestic and international consumers.”

In April 2024, the company’s borrowing base was reaffirmed and the aggregate commitments under its Credit Facility were increased by $500 million to $2.5 billion in total.

Jerry Bohnen