Chesapeake’s decision to trim gas exploration a sign of what’s happened with prices

This week’s decision by Chesapeake Energy to trim some of its natural gas exploration, despite beating analysts expectations with strong fourth quarter earnings, is indicative of what’s happened to U.S. Natural gas producers.

As OK Energy Today reported earlier in the week, the Oklahoma City gas giant said “current mrket dynamics” were behind the decision to reduce rig activity and eliminate a frac crew. The company said the decision will allow it to build short-cycle, capital efficient productive capacity and at the same time, be ready when consumer demand returns.

Nick Dell’Osso, President and CEO explained in an earnings report release, ““Our 2024 operating plan is designed to prudently respond to today’s market, further demonstrating our continued focus on capital discipline, operational efficiency, and free cash flow generation to consistently deliver through all demand cycles.”

Chesapeake is an example of how natural gas producers across the country “slammed the brakes on production” because of falling prices. On Tuesday, gas prices fell another 3 cents or more than 2% to settle at $1.58 per 1,000 cubic feet. Overall, natural gas futures dropped about 2% to a 3 and one-half year low as forecasts indicate warmer weather, low heating demand and near record output are likely to cause an even further decline in prices.

That’s the “current market dynamics” referred to by Chesapeake’s Dell’Osso. The front month natural gas price was down nearly 41% over the past three weeks. Because of it, some natural gas producers are shutting in wells, canceling projects, which Chesapeake might be doing, or selling their firms to rivals to avoid losses, according to a Reuters report.

U.S. gas firms cut drilling 22% in the past year, so Chesapeake Energy’s announced decision is not unusual. How the decision and the falling natural gas prices might affect Chesapeake’s recent all-stock merger worth $7.4 billion with Houston’s Southwestern Energy isn’t clear. Stockholders of both firms have yet to vote on the deal between two of the largest natural gas producers in the U.S. The resulting merger will create one of the largest energy producers in the country.

The falling natural gas prices, ironically arriving at this week’s third anniversary of the 2021 Winter Storm Uri which produced a record high gas price of $1,200 Mcf in Oklahoma, are down to an inflation-adjusted 30-yeara low. Good news for consumers, but not for producers.

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