Chesapeake to boost gas output on acquisitions

Chesapeake Energy will increase natural gas production sharply this year following $4.8bn in acquisitions that expand the company's footprint in natural gas-rich areas of Appalachia and along the US Gulf coast.

Chesapeake this year plans to increase its oil and gas output to 670,000-690,000 b/d of oil equivalent (boe/d), up by 47pc from its 2021 output. Gas output was projected to reach about 3.65 Bcf/d (103mn m³/d), or about 92pc of the total, up from 2.2 Bcf/d in 2021. Gas represented about 85pc of the company's output during the fourth quarter.

The sharp increase in gas output, both in volumes and as a percentage of the company's production mix, underscores a rebound in natural gas prices this year as demand continued to recover from the depths of the Covid-19 pandemic amid a surge in exports of US LNG, robust demand from the US power sector and sluggish domestic production growth. Spot prices at the Henry Hub, the delivery point for gas traded in the Nymex futures market averaged $4.74/mmBtu in the fourth quarter, up by 90pc from a year earlier.

The company said during a conference call today that it plans to take advantage of market opportunities. Chesapeake is in talks with parties about sending more of its gas production abroad as LNG and is willing to step in if new pipeline takeaway capacity becomes available from the Marcellus shale.

"We welcome access having access to more markets," said chief executive Nick Dell'Osso.

Chesapeake last year expanded its position in two of the most prolific gas production areas of the US through the purchase of privately held Vine Energy and Chief E&D.

The $2.2bn purchase of Vine boosted Chesapeake's holdings in the Haynesville shale, a prolific gas field in east Texas and northern Louisiana, while its $2.6bn bid for Chief increases its acreage in the Marcellus shale in Pennsylvania and the surrounding states. Chesapeake completed the Vine acquisition in November and plans to finalize the Chief acquisition during the first quarter 2022.

Chesapeake is operating 11 rigs, up from an average of nine in the fourth quarter. It plans to use two rigs to develop the Marcellus, six in the Haynesville and three in the Eagle Ford. Chesapeake plans to bring 40-50 wells on line during the first quarter.

Chesapeake, once the largest producer of US gas by volume, filed for bankruptcy protection in June 2020 as high US output, swelling inventories and an economic slump related to the Covid-19 pandemic caused gas prices to tumble below $2/mmBtu. Oil prices also dropped to unprecedented lows in April 2020, creating untenable market conditions, the company said. Chesapeake emerged from bankruptcy in February 2021.

By Jason Womack