Bob Downing

Financially strapped Chesapeake Energy Corp. is halting new drilling in Ohio’s Utica Shale.

The company, Ohio’s No. 1 Utica driller, announced Wednesday that it does not intend to drill new wells in eastern Ohio in 2016 because of financial constraints.

That could change if the prices paid for natural gas and liquids increase significantly, the company said.

It has released the two drilling rigs that had been at work in Ohio in the fourth quarter 2015 in Carroll and Harrison counties.

Chesapeake, also the No. 1 driller in Pennsylvania, said it is halting drilling in the state’s Marcellus Shale; one rig had been at work there in late 2015. Rigs also have been released by Chesapeake in the Powder River Basin in Wyoming and will be dropped in the Eagle Ford Shale in Texas by June.

The Oklahoma company said it expects to place 45 to 55 Utica wells previously drilled in Ohio and 20 in Pennsylvania into production in 2016.

The firm placed 43 Utica wells into production in the fourth quarter 2015. That compares to 51 wells that began production in the fourth quarter 2014.

Chesapeake swept into eastern Ohio in 2010 and leased millions of acres. The state has issued 2,134 Utica Shale drilling permits — 813 of those to Chesapeake, far more than any other company. The 813 permits are at various stages; 578 are for Utica wells in production, 106 have been drilled, eight are being drilled and 121 have not yet been acted upon.

Said Shawn Bennett, executive vice president of the Ohio Oil & Gas Association, a statewide trade group, “While the association does not comment on specific companies’ business plans, recent decisions by a number of companies operating in the state to scale back drilling operations for 2016 are unfortunately not unique in the current price environment.”

Continuing low commodity prices and difficulties getting product out of Ohio to high-paying markets because of pipeline delays have hurt Ohio drillers, experts said.

Chesapeake’s announcement comes as no surprise but does raise red flags, said Paul Feezel of Carroll Concerned Citizens. If the drillers lack money to operate, it may be that they won’t have the funds to correct problems when they occur — and that is troubling, he said.

He said he was surprised by how quickly the boom-and-bust cycle of drilling went bust on Chesapeake.

The company’s action “may not be that big of a deal … and its impacts on Ohio may not be that great,” said Jeffrey Dick, professor and chair of the department of geological and environmental sciences at Youngstown State University and a Utica Shale expert.

The company drilled most of its wells from 2011 to mid-2015 and has not been an overly active player in Ohio in recent months, he said.

Ohio still has 15 drilling rigs at work for Gulfport Energy, Antero Resources, Rice Energy and other companies in counties like Belmont, Monroe and Guernsey where Chesapeake has few holdings, he said.

It is difficult to know if the Chesapeake decision will impact the Ohio economy that is thriving in shale-drilling counties, he said.

The halt to drilling in the Utica is tied to Chesapeake reducing its 2016 capital budget by 57 percent to between $1.3 billion and $1.8 billion. It spent $3.6 billion in 2015. It plans to drill 330 to 370 new wells in 2016. But 70 percent of the money will be spent on completing wells, not drilling new ones, the company said.

It is also projecting a decline of up to 5 percent in 2016 production.

Chesapeake’s Utica net production averaged 140 million barrels of oil equivalents per day in the fourth quarter 2015. That is a 33 percent increase over the previous quarter, the company said. The increase is due to Chesapeake bringing curtailed volumes to market as new transportation with better pricing became available to the company, officials said.

The company had cut Utica production since last May, but that has changed with the completion of a new pipeline in eastern Ohio. Wells that had been curtailed are now producing fully, said spokesman Chris Doyle. The Utica cash results are good but not fantastic, he said.

Overall, Chesapeake 2015 daily production averaged 679,200 barrels of oil equivalent, an 8 percent increase from 2014, the company said. Its oil and natural gas production increased by 8 percent and natural gas liquids including ethane and butane jumped by 14 percent from 2014.

Chesapeake has $700 million in pending asset sales in Texas and Oklahoma that are expected to close by June 30 and could have an added $1 billion in additional sales by Dec. 31, said CEO Doug Lawler in an earnings call with analysts and the media. The company has been actively seeking buyers for its assets in the Utica Shale.

For 2015, Chesapeake reported a loss of $14.9 billion. It lost $2.2 billion in the fourth quarter.

The company says it has hedged half of its natural gas and oil sales in 2016 to boost its finances and reduce its debt.

Bob Downing can be reached at 330-996-3745 or bdowning@thebeaconjournal.com.