Chesapeake to cut spending by 57pc, sell assets

OREANDA-NEWS. February 26, 2016. Chesapeake Energy, the second-largest US natural gas producer, will cut spending this year by 57pc compared to 2015 levels and continue to sell assets.

The company will cut capital spending to a range between \\$1.3bn-\\$1.8bn. It will also seek an additional \\$500mn-\\$1bn in divestitures.

Chesapeake follows other producers such as Hess, ConocoPhillips and Anadarko who have resorted to asset sales and sharply lower spending to weather the prolonged crude market downturn.

Chesapeake has also been shrugging off speculation that it is sliding towards bankruptcy as its shares have dropped by more than 90pc in the past year.

The company has closed or is under a purchase and sale agreement for about \\$700mn of asset sales, far exceeding its prior 2016 first quarter projection of \\$200mn-\\$300mn. Chesapeake has received many offers and sales inquiries for smaller, non-core, non-operated properties. Those smaller packages can range from \\$10mn to \\$500mn.

But the interest level for assets larger than \\$1bn is very low in the current market, said chief executive Doug Lawler on a fourth quarter earnings call.

FourPoint Energy said today it has agreed to buy all of Chesapeake's remaining western Anadarko basin oil and gas assets for \\$385mn. The assets include an interest in nearly 3,500 producing wells with an output mix of about 67pc natural gas and 33pc crude and NGLs. The assets cover about 473,000 net acres in 15 counties in western Oklahoma and the Texas Panhandle and are 98pc held by production. The transaction is expected to close in April.

Chesapeake has undergone a significant transformation since Lawler took the helm in May 2013. The company has sold billions of dollars in US assets, including in the prolific Marcellus and Utica shale basins, as it sought to tilt output away from gas and more toward oil and liquids. But falling oil prices since mid-2014 have hurt the profitability of that strategic shift. The firm has also spun off its midstream business.

Chesapeake is expecting to cut production modestly this year by up to 5pc, adjusted for asset sales. "We will be focusing on more completions and less drilling," Lawler said. The company plans to place 330 to 370 wells into service in 2016.

Chesapeake's daily production in the fourth quarter averaged about 661,000 b/d of oil equivalent (boe/d), up by about 1pc from a year earlier, adjusted for asset sales.

Output in the fourth quarter included about 100,700 b/d of oil, 2.9 Bcf/d (82mn m?/d) of natural gas and 75,600 b/d of NGLs.

Chesapeake has hedged more than half of its projected oil production this year at about \\$47.74/bl. More than half of projected natural gas production is hedged at about \\$2.84/Mcf.