Chesapeake Cautious on 'Supply Picture'

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--The head of shale company Chesapeake Energy (NASDAQ:CHK) (Oklahoma City, Oklahoma) said he was concerned about a looming market glut, a comment that followed a revision lower to a forecast for U.S. natural gas prices.

Nick Dell'Osso, the head of Chesapeake, said from the sidelines of an energy conference in Houston that guidance on output would remain unchanged for the time being.

"We are going to be pretty cautious with how we think about changing our supply picture until we see that (oversupply) is no longer the case," he was quoted by the Reuters news service as saying.

A monthly market report from the U.S. Energy Information Administration (EIA) finds that total dry natural gas production in the country is expected to remain relatively stable through 2025 as producers stand pat due to lower natural gas prices.

Most of the new growth isn't expected until late next year, when an increase in the capacity to export liquefied natural gas (LNG) will lead to more feedgas coming from the inland shale basins that Chesapeake taps.

EIA expects total natural gas production to average 104 billion cubic feet per day by the fourth quarter, rising only by about 1% next year. The agency said it expects most of the curtailment from the Haynesville and Appalachian shale basins.

Meanwhile, the EIA's forecast for Henry Hub, the U.S. benchmark for the price of natural gas, was lowered from $2.30 per million British thermal units (MMBtu) in August to $2.19 per MMBtu in the September forecast.

Henry Hub was trading at around $2.25 per MMBtu on Thursday. Henry Hub traded as high as $9.50 per MMBtu in 2022 after the Russian invasion of Ukraine upended global energy markets.

Russia before the war was the main natural gas supplier to the European economy and it took years for the market to adjust to the loss that came from Western-backed sanctions. Europe now gets most of its piped natural gas from Norway, while shipments of LNG derive from the likes of Qatar and the United States.

Chesapeake had already shown a dip in production, meanwhile, reporting a 14% drop in output from first quarter levels to average 2.75 billion cubic feet per day (Bcf/d) during the three months ending June 30.

Chesapeake is expected to close on a $7.4 billion merger with Houston-based Southwestern Energy (NYSE:SWN) (Houston, Texas) by the fourth quarter. Combined production from the Haynesville and Appalachian basins, two reserves where EIA is forecasting a decline in output, would be approximately 7.9 billion cubic-feet equivalent per day.

SilverBow Resources last year put up $700 million to take 42,000 net acres in the Eagle Ford shale basin from Chesapeake, marking the end of the company's operations in the basin.

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