Chesapeake Energy, a leading U.S. oil and gas company, announced on Wednesday that it anticipates a decrease in oilfield service costs by 5% to 7% in the coming year. This forecasted deflation is a result of diminished demand due to a slowdown in drilling and completion activity, despite service providers’ assertions of maintaining prices.
The U.S. shale industry has been compelled to reduce expenditure on drilling and completing new wells due to weak oil and gas prices. This has led to a decreased demand for equipment and services offered by oilfield service companies. The impact of this trend was reflected in Chesapeake Energy’s shares, which fell by 2.7% to $82.14 in midday trading on Wednesday. This followed the company’s report of a 68% drop in second-quarter profit, attributed to lower gas prices and production.
As one of the top U.S. natural gas producers, Chesapeake Energy projects that costs for a well drilled in the first quarter of next year will be 5% to 7% lower compared to a well drilled in the first quarter of 2023. This is due to the expected softening of prices for sand, pressure pumping, and rigs.
This outlook is shared by shale producer Diamondback Energy, which also stated this week that it anticipates a decrease in prices for oilfield equipment and services in response to reduced drilling activity.
However, many drilling and frac service providers have expressed their intent to maintain pricing. They suggest that oilfield activity could see a recovery later this year, buoyed by a recent increase in oil and gas prices.
Despite the challenging market conditions, Chesapeake Energy managed to outperform expectations. On an adjusted basis, the company earned 64 cents per share, surpassing analysts’ average estimate of 42 cents, according to data from Refinitiv.