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Oil output expected to increase as gas production declines

Company developing former Wildhorse acreage

Houston — Continuing its drive to become an oilier company, Chesapeake Energy said that during the second quarter of 2019 it increased oil production by 10% year over year exclusive of asset sales and purchases.

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The company that once billed itself as "America's Champion of Natural Gas" reported in its Q2 earnings that it projects to grow its crude oil production by double digits in 2020, while reducing the amount of capital allocated to its legacy gas assets, and forecasting a double-digit decline in gas production in 2020.

"Chesapeake produced a record 122,000 barrels of oil per day, and we increased our oil mix percentage to a record 25% of total production," President and CEO Robert Douglas Lawler said during the company's earnings call Tuesday.

Lawler attributed the oil volume increase to the integration of assets in the Eagle Ford and Austin Chalk plays of Texas that Chesapeake acquired through its recent purchase of Wildhorse Resources, and to "steady growth from the Powder River Basin and improved base production performance from South Texas and the Midcontinent."

GAS PRODUCTION DECLINES

Chesapeake's average Q2 2019 production was about 496,000 boe/d, down about 6% from the 530,000 boe/d produced in the 2018 second quarter. Gas production dropped to about 2.03 Bcf/d in Q2 2019, compared with 2.31 Bcf/d in the year-ago quarter.

The producer said it would keep its focus on increasing oil production in the next year. In the primarily gas-producing Marcellus Shale in northeast Pennsylvania, Chesapeake "expects to keep its gas-weighted capital spending at prudent levels in 2020." At the current activity level, Chesapeake estimated it has about 10 years of drilling inventory in the play at break-even prices of $1.50/Mcf to $1.75/Mcf.

Meanwhile, citing low gas price realizations, the company said it plans to reduce its rig count in the gas-heavy Haynesville Shale play in northern Louisiana from the one rig operating currently "to zero in the near future."

BRAZOS VALLEY PLAY

Chesapeake said it is currently operating four rigs in its new Brazos Valley area comprising Wildhorse's former acreage. In Q2, the company placed 24 wells on production, four Austin Chalk gas wells and 20 Eagle Ford oil wells, and expects to place 26 wells, all in the Eagle Ford oil window, on production in Q3.

In the Eagle Ford Shale play of South Texas, where it had placed 17 wells on production in 2019's second quarter, the producer plans to increase the pace and place 42 wells on production in Q3 as it completes larger drilling projects in the play.

Chesapeake placed 16 wells on production in the 2019 second quarter in the oil-rich Powder River Basin of Wyoming and expects to place 26 wells on production in the play in the 2019 third quarter. The company dropped its only operated rig in its Midcontinent operating area in Oklahoma and expects not to place any wells into production in the play for the rest of the year.

In its financial results for Q2 2019, Chesapeake reported net income of $98 million and net income available to common stockholders of $75 million, or 5 cents per diluted share. Adjusting for items typically excluded by securities analysts, the Q2 2019 adjusted net loss attributable to Chesapeake was $158 million, or 10 cents per share, the company said.

-- Jim Magill, jim.magill@spglobal.com

-- Edited by Bill Montgomery, newsdesk@spglobal.com