Chesapeake Energy Corp. is strategizing to navigate the fluctuating natural gas market by planning to place 80 of its new natural gas wells into a state of suspended animation, or suspense, by year’s end. This move is calculated to capitalize on potential future upswings in the market for power-plant and heating fuel, which is currently experiencing some of its lowest prices in years. The decision comes as natural gas prices remain depressed due to a combination of mild winter weather reducing demand and a surge in production leading to abundant fuel reserves.
As of now, Chesapeake has already drilled 15 wells that are maintained in reserve, awaiting a favorable market shift. Chief Operating Officer Josh Viets, speaking at Hart Energy’s DUG GAS+ Conference & Exhibition 2024 in Shreveport, Louisiana, described this strategy as utilizing the reservoir itself as a form of storage. According to Viets, who has extensive experience from his tenure overseeing ConocoPhillips’ Permian basin operations, this approach allows Chesapeake to rapidly respond to market demands by activating these suspended wells to supply gas promptly when needed.
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utting a natural gas well into suspense involves temporarily ceasing production while maintaining the well’s infrastructure intact and ready for reactivation. This practice allows operators to quickly resume gas extraction without the time and expense associated with drilling new wells. The decision to suspend wells is often driven by economic factors, such as low market prices or oversupply, which make continued extraction unprofitable or less economically viable in the short term. By suspending wells, companies can reduce operational costs and avoid selling gas at low prices, strategically waiting for market conditions to improve to maximize profitability.
In the context of Chesapeake’s strategy, the suspended wells act as a flexible resource that can be brought online swiftly to meet market demand, reflecting a tactical response to the current oversupply and low-price environment in the natural gas market. The company is banking on a future increase in demand, particularly for liquefied natural gas (LNG), which is expected to rise in the coming years.
Chesapeake’s proactive measure to reduce its output by about 20% from the previous year’s levels underscores its commitment to adapting its production strategy in line with market trends. This approach not only helps in managing the supply glut but also positions Chesapeake advantageously for when the market rebounds. By having a reserve of ready-to-produce wells, Chesapeake aims to optimize its response to market dynamics, ensuring that it can leverage rising prices and demand to bolster its financial performance and market position.
