Chesapeake shares rig, activity, hedging plans for 2019

By Luke Geiver | January 10, 2019

Chesapeake Energy expects to maintain its rig count this year in the Eagle Ford acreage the Oklahoma City operator acquired from WildHorse Resources late last year. The rig count in Chesapeake’s Marcellus or Powder River Basin operations could change, however, the company said in a Q4 wrap-up that provided a 2019 preview.

“We plan to reduce our 2019 capital expenditures by lowering our rig count by approximately 20 percent, expecting to average 14 rigs versus our current rig count of 18,” said Doug Lawler, president and CEO. “We expect our capital efficiency to improve in 2019 as total net capital per rig line is projected to decrease by 15 to 20 percent compared to 2018. The improvement in our capital efficiency, along with our focus on our high-margin oil investments, should result in higher operating cash flow and stronger margins in 2019 compared to 2018.”

Through a deal involving common stock and shares valued at roughly $4 billion, Chesapeake has added the Eagle Ford acreage of Houston-based WildHorse Resources. According to the company, those acres are delivering the highest margins in the company, primarily driven by Gulf Coast crude oil pricing. At just over 105,000 barrels of oil equivalent (58 percent oil) produced in Q4, the Eagle Ford is producing more than Chesapeake anticipated. Work to appraise its Austin Chalk and Upper Eagle Ford potential will be complete by the end of Q1.

Built on producing shale gas, Chesapeake said it continues to create significant free cash flow in the Marcellus due to higher realized in-basin gas prices. New emphasis on longer laterals and better downhole steering techniques can deliver better results, including two lower Marcellus record wells in northern Sullivan County to end 2018. Both wells produced more than 62 million cubic feet of gas per day. Both laterals were more than 9,000 feet. “While both wells had fracture stimulations using approximately 1,600 pounds of sand per foot of lateral, both wells were also bounded by previously drilled wells that were approximately 1,300 feet away, pointing to the advantage and opportunity that Chesapeake’s acreage position provides in its ability to properly space future drilling locations.”

In the Powder River Basin, Chesapeake expects production to increase this year. It is currently running five rigs.

The company has hedged 16 million barrels of oil at $58.61/b. Roughly 7 million barrels of Eagle Ford production will come at premium to WTI of more than $6/b. Nearly 600 billion cubic feet of gas has been hedged at a price of $2.85 per thousand cubic feet.

At the close of 2018, the company had $8 billion in debt with $2.5 billion in available liquidity.