Chesapeake Energy Corporation Provides 2016 Guidance And Reports 2015 Full Year And Fourth Quarter Financial And Operational Results

OREANDA-NEWS. Chesapeake Energy Corporation (NYSE: CHK) today provided financial and operational guidance for 2016 and reported financial and operational results for the 2015 full year and fourth quarter. Highlights include:

• Planned 2016 total capital expenditures ranging from $1.3 to $1.8 billion, approximately 57% lower than 2015 levels
• Projected 2016 production decline of 0% to 5%, adjusted for asset sales
• $700 million in asset divestitures closed or under signed sales agreements since year-end 2015; $500 million in net proceeds after repurchase of three Volumetric Production Payments 
• Targeting an additional $500 million to $1 billion in asset divestitures in 2016
• Average 2015 production of approximately 679,200 boe per day, an increase of 8% year over year, adjusted for asset sales
• 2015 adjusted net loss of $0.20 per fully diluted share and 2015 adjusted ebitda of $2.385 billion

Doug Lawler, Chesapeake's Chief Executive Officer, commented, "In light of the challenging commodity price environment, our focus for 2016 is to improve our liquidity, further reduce our cost structure and address our near-term debt maturities to strengthen our balance sheet. Our tactical focus areas remain asset divestitures, of which we are pleased to have approximately $500 million in net proceeds closed or under signed sales agreements, liability management and open market purchases of our bonds. We are also renegotiating gathering, transportation and processing contracts to better align with our current development plans and market conditions, aggressively working to minimize the decline of our base production and making shorter-cycle investments with our 2016 capital program. We have set our initial capital program for the year at $1.3 to $1.8 billion, including capitalized interest, and will remain flexible to raise or lower based on commodity prices."

2016 Capital Program and Production Outlook

Chesapeake is budgeting total capital expenditures (including capitalized interest) of $1.3 to $1.8 billion for 2016. Using the midpoint of the range, this represents a 57% reduction from the company's 2015 total capital expenditures of $3.6 billion. The company's planned 2016 capital program will be focused on shorter cash cycle projects that generate positive rates of return in today's commodity price environment and in mitigation of the company's commitment obligations. As a result, Chesapeake's planned 2016 capital program will be dedicated to more completions and less drilling, with total completion spending representing approximately 70% of the company's total drilling and completion program. This program, combined with the improving quality of the company's operations, its capital efficiency and lower service costs will provide incrementally positive economics, even in today's commodity price environment.

In 2016, Chesapeake plans to place approximately 330 to 370 wells on production, resulting in total production that declines approximately 0% to 5% compared to 2015, after adjusting for asset sales. At February 23, 2016, the company had approximately $700 million in asset divestitures that had closed or that signed and are expected to close between now and the end of the 2016 second quarter. The company expects that these asset sales will result in lower production of approximately 31,000 barrels of oil equivalent (boe) per day of production in 2016. The planned divestiture of certain of the company's Granite Wash assets in Western Oklahoma and the Texas Panhandle requires Chesapeake to repurchase the overriding royalty interests related to three of the company's previous volumetric production payment transactions for approximately $200 million. As a result, the projected net impact to the company's full year 2016 production will be a reduction of approximately 25,000 boe per day.

In addition, to help improve the company's cash flow and provide protection against lower commodity prices, Chesapeake has hedged more than 590 billion cubic feet of its projected 2016 natural gas production at approximately $2.84 per mcf and more than 19 million barrels of its projected 2016 oil production at approximately $47.79 per barrel. A summary of the company's planned 2016 capital program is shown below in the "Capital Spending and Cost Overview" section, while the company's 2016 forecasted production volumes are provided in the Outlook dated February 24, 2016.

2015 Full Year Results

For the 2015 full year, Chesapeake reported a net loss available to common stockholders of $14.856 billion, or $22.43 per fully diluted share. Items typically excluded by securities analysts in their earnings estimates reduced net income available to common stockholders for the 2015 full year by approximately $14.527 billion. The primary sources of this reduction were quarterly noncash impairments of the carrying value of Chesapeake's oil and natural gas properties largely resulting from significant decreases in the trailing 12-month average first-day-of-the-month oil and natural gas prices used in the company's impairment calculations.  Adjusting for these items, 2015 full year adjusted net loss available to common stockholders was $329 million, or $0.20 per fully diluted share, compared to adjusted net income available to common stockholders of $957 million, or $1.49 per fully diluted share, for the 2014 full year.

Adjusted ebitda was $2.385 billion for the 2015 full year, compared to $4.945 billion for the 2014 full year.  Operating cash flow, which is defined as cash flow provided by operating activities before changes in assets and liabilities, was $2.268 billion for the 2015 full year, compared to $5.146 billion for the 2014 full year. The year-over-year decreases in adjusted ebitda and operating cash flow were primarily the result of lower realized oil, natural gas and natural gas liquid (NGL) prices and lower production volumes, partially offset by higher realized hedging gains and lower production expenses, general and administrative (G&A) expenses and production taxes. Realized hedging gains on the company's oil and gas production resulted in additional revenues of approximately $1.3 billion for the 2015 full year, on a pre-tax basis, compared to realized hedging losses of approximately $375 million for the 2014 full year.

Adjusted net income available to common stockholders, operating cash flow, ebitda and adjusted ebitda are non-GAAP financial measures.  Reconciliations of these measures to comparable financial measures calculated in accordance with generally accepted accounting principles are provided in this release.

Chesapeake's daily production for the 2015 full year averaged 679,200 barrels of oil equivalent (boe), a year-over-year increase of 8%, adjusted for asset sales.  Average daily production consisted of approximately 114,000 barrels (bbls) of oil, 2.9 billion cubic feet (bcf) of natural gas and 76,700 bbls of NGL.  Adjusted for asset sales, 2015 full year average daily oil production increased 7%, average daily natural gas production increased 7% and average daily NGL production increased 14%.

2015 Fourth Quarter Financial Results

For the 2015 fourth quarter, Chesapeake reported a net loss available to common stockholders of $2.228 billion, or $3.36 per fully diluted share. Items typically excluded by securities analysts in their earnings estimates reduced 2015 fourth quarter net income by approximately $2.060 billion. The primary source of this reduction was a noncash impairment of the carrying value of Chesapeake's oil and natural gas properties largely resulting from significant decreases in the trailing 12-month average first-day-of-the-month oil and natural gas prices as of December 31, 2015, compared to September 30, 2015. Adjusting for these items, the 2015 fourth quarter net loss available to common stockholders was $168 million, or $0.16 per fully diluted share, which compares to adjusted net income available to common stockholders of $34 million, or $0.11 per fully diluted share, in the 2014 fourth quarter.

Adjusted ebitda was $298 million in the 2015 fourth quarter, compared to $916 million in the 2014 fourth quarter. Operating cash flow was $386 million in the 2015 fourth quarter, compared to $993 million in the 2014 fourth quarter. The year-over-year decreases in adjusted ebitda and operating cash flow were primarily the result of lower realized oil, natural gas and NGL prices and lower production volumes, partially offset by higher realized hedging gains and lower production expenses, G&A expenses and production taxes. Realized hedging gains on the company's oil and gas production resulted in additional revenues of approximately $334 million for the 2015 fourth quarter, on a pre-tax basis, compared to realized hedging gains of approximately $133 million for the 2014 fourth quarter.

Adjusted net income available to common stockholders, operating cash flow, ebitda and adjusted ebitda are non-GAAP financial measures. Reconciliations of these measures to comparable financial measures calculated in accordance with generally accepted accounting principles are provided in this release.

Chesapeake's daily production for the 2015 fourth quarter averaged approximately 661,100 boe, a year-over-year increase of 1% adjusted for asset sales. Average daily production in the 2015 fourth quarter consisted of approximately 100,700 bbls of oil, 2.9 bcf of natural gas and 75,600 bbls of NGL. Adjusted for asset sales, 2015 fourth quarter average daily oil production decreased 7%, average daily natural gas production increased 3% and average daily NGL production increased 4%.

Capital Spending and Cost Overview

Chesapeake's drilling and completion capital expenditures during the 2015 full year were approximately $3.0 billion, and capital expenditures for the acquisition of unproved properties, geological and geophysical costs and other property, plant and equipment were approximately $231 million, for a total of approximately $3.2 billion, within the company's forecasted range of $3.0 to $3.5 billion. Total capital expenditures, including capitalized interest of $424 million, were approximately $3.6 billion, compared to $6.7 billion in 2014, and are reconciled below. Chesapeake's total capital expenditures, including capitalized interest of $88 million, were approximately $548 million in the 2015 fourth quarter compared to approximately $1.8 billion in the 2014 fourth quarter.

Chesapeake's focus on cost discipline continued to generate reductions in production and G&A expenses.  Production expenses during the 2015 full year were $4.22 per boe, while G&A expenses (including stock-based compensation) during the 2015 full year were $0.95 per boe.  Combined production expenses and G&A expenses (including stock-based compensation) during the 2015 full year decreased 13% compared to the 2014 full year. 

Average production expenses during the 2015 fourth quarter were $3.62 per boe, a decrease of 29% from the 2014 fourth quarter. G&A expenses (including stock-based compensation) during the 2015 fourth quarter were $1.02 per boe, a decrease of 26% from the 2014 fourth quarter. A summary of the company's guidance for 2016 is provided in the Outlook dated February 24, 2016.

Balance Sheet and Liquidity

Chesapeake made significant debt reductions in 2015, with total principal debt balances down to approximately $9.7 billion at year-end 2015 compared to approximately $11.8 billion at year-end 2014. In November 2015, the company repurchased $394 million of its 2.75% cumulative convertible senior notes due 2035. In December 2015, the company privately exchanged new 8.00% senior secured second lien notes due 2022 (second lien notes) for certain outstanding senior unsecured notes (existing notes). Approximately $3.9 billion of the existing notes were validly tendered in exchange for approximately $2.4 billion of the second lien notes. In addition, since September 30, 2015, the company has repurchased, for cash, approximately $240 million of 3.25% senior notes due March 2016 at an average discount of approximately 5% and approximately $60 million of debt due in 2017 (including convertible debt) at an average discount of approximately 45%.

As of February 23, 2016, Chesapeake's debt principal balance was approximately $9.5 billion, and the company's near-term liquidity consisted of over $300 million in cash and a $4 billion revolving credit facility, which was undrawn (other than letters of credit issued thereunder with the aggregate face amount of approximately $77 million). The company plans to repay the remaining balance of its 3.25% senior notes due March 2016 with available liquidity and expects to continue to take advantage of the significant discounts in the prices of its debt securities in 2016.

Midstream Transportation Update

In February 2016, Chesapeake amended certain of its firm transportation agreements in its Haynesville, Barnett and Eagle Ford operating areas which reduced the company's firm transportation volume commitments and fees. The company estimates a benefit of approximately $50 million in lower unused demand charges for its underutilized capacity and lower transportation fees in 2016, which equates to an approximate $0.06 per mcf improvement in the company's total transportation expenses for natural gas. These benefits have been included in the company's cost guidance provided in the Outlook dated February 24, 2016. Chesapeake continues to seek to modify additional gathering, processing and transportation agreements with its midstream service providers resulting in mutually beneficial solutions in 2016.

Operational Results

Eagle Ford Shale (South Texas): Eagle Ford net production averaged approximately 97 thousand barrels of oil equivalent (mboe) per day (210 gross operated mboe per day) during the 2015 fourth quarter, a decrease of 10% sequentially. Production during the 2015 fourth quarter was impacted by plant downtime that averaged 2 mboe per day. Average completed well costs to date in 2015 (through October) are $5.4 million with an average completed lateral length of 6,250 feet and 23 frac stages, compared to the full-year 2014 average completed well cost of $5.9 million with an average completed lateral length of 5,850 feet and 18 frac stages. The company placed 18 wells on production during the 2015 fourth quarter, compared to 123 wells in the 2014 fourth quarter, and plans to place approximately 170 to 180 wells on production in 2016. Chesapeake's operated rig count in the Eagle Ford averaged three rigs in the 2015 fourth quarter, and the company anticipates releasing all operated rigs in the area by June.

Haynesville and Bossier Shales (Northwest Louisiana): Haynesville net production averaged approximately 609 million cubic feet of natural gas (mmcf) per day (972 gross operated mmcf per day) during the 2015 fourth quarter, a decrease of 4% sequentially. Average completed well costs to date in 2015 (through October) are $7.7 million with an average completed lateral length of 5,350 feet and 17 frac stages, compared to the full-year 2014 average completed well cost of $8.4 million with an average completed lateral length of 4,900 feet and 14 frac stages. Longer completed laterals continue to generate significant efficiencies with equivalent per foot of lateral production, evidenced by the company's first well in the area with a completed lateral length of more than 10,000 feet, the PE 36&25-15-15 1H ALT, which reached a peak rate of 25.0 mmcf per day with a flowing tubing pressure of 7,200 psi. The company placed 13 wells on production during the 2015 fourth quarter, compared to 18 wells in the 2014 fourth quarter, and plans to place approximately 50 to 60 wells on production in 2016. Operated rig count in the Haynesville averaged six rigs in the 2015 fourth quarter, and the company anticipates utilizing up to three operated rigs in the area in 2016.

Mid-Continent: Oklahoma STACK (Northwest and Central Oklahoma): The company has completed three wells targeting the Meramec formation with highly encouraging results. The first two wells, the Rouce 4-17-10 1H and Wittrock 16-16-9 1H, reached peak production of approximately 1,010 bbls of oil per day (1,260 boe per day) and 1,500 bbls of oil per day (2,240 boe per day), respectively. The company's third well, the Stangl 36-16-9 1H, has reached 1,241 bbls of oil per day (1,480 boe per day) after eight days of flowback. The company has also recently drilled two additional Oswego wells which are currently being completed and will likely be placed on production in the second quarter. The company plans to continue to delineate its significant STACK position and place approximately 35 to 45 wells on production and utilize up to three rigs in 2016.

Mississippian Lime (Northern Oklahoma): Mississippian Lime net production averaged approximately 29 mboe per day (67 gross operated mboe per day) during the 2015 fourth quarter, a decrease of 7% sequentially. Average completed well costs to date in 2015 (through October) are $2.8 million with an average completed lateral length of 4,600 feet and 10 frac stages, compared to the full-year 2014 average completed well cost of $3.0 million with an average completed lateral length of 4,450 feet and nine frac stages. Chesapeake's first multilateral well in the Mississippian Lime, the Wilber 26-27-11 1H having dual laterals of 4,653 feet and 4,556 feet, reached a peak rate of 1,570 boe per day in the 2015 fourth quarter. The company placed 11 wells on production during the 2015 fourth quarter, compared to 42 wells in the 2014 fourth quarter. Operated rig count in the Mississippian Lime averaged one rig during the 2015 fourth quarter.

Utica Shale (Eastern Ohio): Utica net production averaged approximately 140 mboe per day (241 gross operated mboe per day) during the 2015 fourth quarter, an increase of 33% sequentially, as the company brought curtailed volumes to market as new transportation became available with better pricing. Average completed well costs to date in 2015 (through October) are $7.2 million with an average completed lateral length of 7,800 feet and 40 frac stages, compared to the full-year 2014 average completed well cost of $7.2 million with an average completed lateral length of 6,200 feet and 29 frac stages. The company placed 43 wells on production during the 2015 fourth quarter, compared to 51 wells in the 2014 fourth quarter, and plans to place approximately 45 to 55 wells on production in 2016. Operated rig count in the Utica averaged two rigs in the 2015 fourth quarter. The company has now released all operated rigs in the area.

Marcellus Shale (Northern Pennsylvania): Marcellus net production averaged approximately 782 mmcf per day (1.78 gross operated bcf per day) during the 2015 fourth quarter, a decrease of 3% sequentially. Average completed well costs to date in 2015 (through October) are $7.6 million with an average completed lateral length of 6,750 feet and 29 frac stages, compared to the full-year 2014 average completed well cost of $7.5 million with an average completed lateral length of 6,000 feet and 27 frac stages. The company placed three wells on production during the 2015 fourth quarter, compared to 25 wells in the 2014 fourth quarter, and plans to place approximately 20 wells on production in 2016. Operated rig count in the Marcellus averaged one rig in the 2015 fourth quarter. The company has now released all operated rigs in the area.

Powder River Basin (PRB) (Wyoming): PRB net production averaged approximately 20 mboe per day (30 gross operated mboe per day) during the 2015 fourth quarter, a decrease of 4% sequentially. Average completed well costs to date in 2015 (though October) are $10.4 million with an average completed lateral length of 5,900 feet and 22 frac stages, compared to the full-year 2014 average completed well cost of $10.6 million with an average completed lateral length of 5,400 feet and 20 frac stages. The company placed seven wells on production during the 2015 fourth quarter, compared to 13 wells in the 2014 fourth quarter, and plans to place approximately five wells on production in 2016. The company has released all operated rigs in the area.