Chesapeake takes $4bn hit, raises output guidance

OREANDA-NEWS. August 19, 2015.  Chesapeake took a writedown of \\$4.03bn as a sharp fall in commodity prices lowered the value of its oil and gas assets, but a decline in costs has prompted the independent to raise its output guidance for this year.

Chesapeake joins a growing group of US shale producers such as Hess and Anadarko who have all raised their output guidance for the year with a much lower capital expenditure (capex) as oil field service providers lower the rates they charge for drilling rigs, crew and chemicals. The producers are also getting more efficient, extracting more volume from the same well.

But the twin advantages, which point to the resilience of the industry, risk prolonging the current price downturn.

"Despite the challenges, we remain focused on lowering costs and improving operational efficiencies in our portfolio of high-quality assets," chief executive Doug Lawler said. "We are currently expecting a stronger production trajectory as we enter 2016."

Chesapeake raised its guidance by 4pc to exit 2015 with an output of about 660,000 b/d of oil equivalent (boe/d), even as it keeps its annual capex guidance unchanged at \\$3.5bn-\\$4bn. "While we strive to remain flexible in the face of lower commodity prices, we continue to focus on driving our costs lower," Lawler said.

Output for the second quarter averaged 703,000 boe/d, gaining 13pc from a year earlier after adjusting for asset sales. Of that, both oil and natural gas output gained 11pc to 119,500 b/d and 3 Bcf/d, respectively, while natural gas liquids (NGL) gained by 24pc to 79,200 b/d.

Total capex fell by 38pc to \\$957mn in the second quarter from \\$1.6bn a year earlier and down by 36pc from \\$1.5bn in the first quarter. Its capex on drilling and completion for the second quarter fell by 39pc from the first quarter to \\$787mn.

The independent operated 26 rigs in the second quarter compared with 65 a year earlier and 54 in the first quarter. It completed 121 gross wells versus 294 a year earlier and 261 in the first quarter and connected 173 of them against 275 a year earlier and 262 in the first quarter.

The company made the writedown because of the "significant decreases in the trailing 12-month average first-day-of the-month oil and natural gas prices as of 30 June 2015 compared to 31 March 2015," it said. So far in the second quarter, only Chevron has taken a writedown of \\$2.6bn, largely as it lowered its long-term price outlook to an undisclosed number. Others like Apache, Anadarko and Occidental announced billion-dollar write-downs earlier in the year.

The impairment resulted in Chesapeake posting a net loss of \\$4.15bn compared with a profit of \\$145mn a year earlier.