By Arathy Somasekhar

HOUSTON U.S. oil and gas company Chesapeake Energy on Wednesday said it expects deflation in oilfield service costs by 5% to 7% next year as weaker drilling and completions activity hurts demand, even as service providers have vowed to maintain prices.

U.S. shale producers have cut spending on drilling and completing new wells in response to weak oil and gas prices, reducing demand for equipment and services provided by oilfield service companies.

Shares of Chesapeake Energy were down 2.7% at $82.14 in midday trading on Wednesday, one day after the company posted a 68% fall in second-quarter profit due to lower gas prices and production.

Chesapeake Energy, among the top U.S. natural gas producers, said it expects costs to be 5% to 7% lower for a well it drills in the first quarter of next year compared with a well drilled in the first quarter of 2023 as prices for sand, pressure pumping and rigs are expected to soften.

Shale producer Diamondback Energy also said this week that it expects prices for oilfield equipment and services to fall in response to lower drilling activity.

However, many drilling and frac service providers have said they expect to hold the line on pricing, adding that oilfield activity could recover later this year thanks to a recent uptick in oil and gas prices.

On an adjusted basis, Chesapeake Energy earned 64 cents per share, beating analysts' average estimate of 42 cents, according to Refinitiv data.

(Reporting by Arathy Somasekhar in Houston; Editing by Susan Heavey)