Chesapeake Energy Corporation Updates Its 2015 Operating Plan in Response to Low Commodity Price Environment
Chesapeake Energy Corporation (NYSE:CHK) today announced it has reduced
its 2015 capital budget (including capitalized interest of $500 million)
to $3.5 – $4.0 billion for 2015, which is a $500 million reduction from
its previous guidance of $4.0 – $4.5 billion. Chesapeake plans to
operate 25 – 35 rigs in 2015, which represents a decrease of
approximately 55% from an average of 64 rigs in 2014. The company
intends to spud and connect to sales approximately 520 and 650 gross
operated wells, respectively, in 2015 (a decrease from 1,175 and 1,150
wells in 2014). As a result, the company is lowering its targeted 2015
production to 231 – 236 million barrels of oil equivalent, or average
daily production of 635 – 645 thousand barrels of oil equivalent, which
represents 1 – 3% production growth over the prior year after adjusting
for 2014 asset sales.
Doug Lawler, Chesapeake’s Chief Executive Officer, said, “We entered
2015 with a strong liquidity position and we intend to manage it
prudently. In response to continued weak commodity prices, we are
further reducing capital expenditures and associated drilling activity.
As a result, we now forecast ending 2015 with approximately $6 billion
in combined cash and borrowing capacity under our credit facility. With
this budget revision we anticipate being free cash flow neutral by the
end of 2015.”
A summary of Chesapeake’s updated guidance for 2015 is provided in the
Outlook dated March 23, 2015, which is attached to this release as
Schedule “A.”
Chesapeake Energy Corporation (NYSE:CHK) is the second-largest
producer of natural gas and the 11th largest producer of oil and natural
gas liquids in the U.S. Headquartered in Oklahoma City,
the company's operations are focused on discovering and developing its
large and geographically diverse resource base of unconventional oil and
natural gas assets onshore in the U.S. The company also
owns marketing and natural gas gathering and compression businesses.
Further information is available at www.chk.com
where Chesapeake routinely posts announcements, updates, events,
investor information, presentations and news releases.
This news release and the accompanying Outlook include
"forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Forward-looking statements are statements other than
statements of historical fact. These statements include our current
expectations or forecasts of future capital expenditures and capitalized
interest, drilling activity and well connections, production and
production growth, realized hedging effects and differentials, operating
costs, cash and credit facility associated liquidity, marketing,
gathering and compression net margin, net income attributable to
noncontrolling interests, book tax rate, business strategy and
objectives for future operations, and the assumptions on which such
forward-looking statements are based. Although we believe the
expectations and forecasts reflected in the forward-looking statements
are reasonable, we can give no assurance they will prove to have been
correct. They can be affected by inaccurate or changed
assumptions or by known or unknown risks and uncertainties.
Factors that could cause actual results to differ materially from
expected results include those described under "Risk Factors” in Item 1A
of our annual report on Form 10-K and any updates to those factors set
forth in Chesapeake's subsequent Quarterly Reports on Form 10-Q or
Current Reports on Form 8-K (available at http://www.chk.com/investors/sec-filings). These
risk factors include: the volatility of oil, natural gas and NGL prices;
write-downs of our oil and natural gas carrying values due to declines
in prices; the availability of operating cash flow and other funds to
finance reserve replacement costs; our ability to replace reserves and
sustain production; uncertainties inherent in estimating quantities of
oil, natural gas and NGL reserves and projecting future rates of
production and the amount and timing of development expenditures; our
ability to achieve profitable or targeted results in drilling and well
operations; leasehold terms expiring before production can be
established; commodity derivative activities resulting in lower prices
realized on oil, natural gas and NGL sales; the need to secure
derivative liabilities and the inability of counterparties to satisfy
their obligations; adverse developments or losses from pending or future
litigation and regulatory proceedings, including royalty claims; the
limitations our level of indebtedness may have on our financial
flexibility; charges incurred in response to market conditions and in
connection with actions to reduce financial leverage and complexity;
drilling and operating risks and resulting liabilities; effects of
environmental protection laws and regulation on our business;
legislative and regulatory initiatives further regulating hydraulic
fracturing; our need to secure adequate supplies of water for our
drilling operations and to dispose of or recycle the water used; federal
and state tax proposals affecting our industry; potential OTC
derivatives regulation limiting our ability to hedge against commodity
price fluctuations; impacts of potential legislative and regulatory
actions addressing climate change; competition in the oil and gas
exploration and production industry; a deterioration in general
economic, business or industry conditions; negative public perceptions
of us or our industry; limited control over properties we do not
operate; pipeline and gathering system capacity constraints and
transportation interruptions; cyber attacks adversely impacting our
operations; and interruption in operations at our headquarters due to a
catastrophic event.
In addition, disclosures concerning the estimated contribution of
derivative contracts to our future results of operations are based upon
market information as of a specific date. These market prices are
subject to significant volatility. Our production forecasts are
also dependent upon many assumptions, including estimates of production
decline rates from existing wells and the outcome of future drilling
activity. Expected asset sales may not be completed in the time
frame anticipated or at all. We caution you not to place undue
reliance on our forward-looking statements, which speak only as of the
date of this news release, and we undertake no obligation to update any
of the information provided in this release or the accompanying Outlook,
except as required by applicable law.
SCHEDULE "A”
MANAGEMENT’S OUTLOOK AS OF MARCH 23,
2015
Chesapeake periodically provides management guidance on certain factors
that affect the company’s future financial performance.
|
|
Year Ending
12/31/2015
|
Adjusted Production Growth(a)
|
|
1 - 3%
|
Absolute Production
|
|
|
Liquids - mmbbls
|
|
61 – 63
|
Oil - mmbbls
|
|
38 – 39
|
NGL(b) - mmbbls
|
|
23 – 24
|
Natural gas - bcf
|
|
1,020 – 1,040
|
Total absolute production - mmboe
|
|
231 – 236
|
Absolute daily rate - mboe
|
|
635 – 645
|
Estimated Realized Hedging Effects(c) (based on 3/20/15
strip prices):
|
|
|
Oil - $/bbl
|
|
$21.11
|
Natural gas - $/mcf
|
|
$0.34
|
Estimated Basis/Gathering/Marketing/Transportation Differentials to
NYMEX Prices:
|
|
|
Oil - $/bbl
|
|
$7.00 – 9.00
|
NGL - $/bbl
|
|
$48.00 – 52.00
|
Natural gas - $/mcf
|
|
$1.70 – 1.90
|
Fourth quarter MVC estimate ($ in millions)
|
|
($180) – (200)
|
Operating Costs per Boe of Projected Production:
|
|
|
Production expense
|
|
$4.50 – 5.00
|
Production taxes
|
|
$0.45 – 0.55
|
General and administrative(d)
|
|
$1.45 – 1.55
|
Stock-based compensation (noncash)
|
|
$0.20 – 0.25
|
DD&A of natural gas and liquids assets
|
|
$10.50 – 11.50
|
Depreciation of other assets
|
|
$0.60 – 0.70
|
Interest expense(e)
|
|
$1.00 – 1.10
|
Other ($ millions):
|
|
|
Marketing, gathering and compression net margin(f)
|
|
($40 – 60)
|
Net income attributable to noncontrolling interests and other(g)
|
|
($30 – 50)
|
Book Tax Rate
|
|
37%
|
Capital Expenditures ($ in millions)(h)
|
|
$3,000 – 3,500
|
Capitalized Interest ($ in millions)
|
|
$500
|
Total Capital Expenditures ($ in millions)
|
|
$3,500 – 4,000
|
|
|
|
(a)
|
|
Based on 2014 production of 622 mboe/day adjusted for 2014
divestitures and the potential sale of Cleveland Tonkawa assets in
2015.
|
(b)
|
|
Assumes ethane recovery in the Utica to fulfill Chesapeake’s
pipeline commitments, no ethane recovery in the Powder River Basin
and partial ethane recovery in the Mid-Continent and Eagle Ford.
|
(c)
|
|
Includes expected settlements for commodity derivatives adjusted for
option premiums. For derivatives closed early, settlements are
reflected in the period of original contract expiration.
|
(d)
|
|
Excludes expenses associated with stock-based compensation.
|
(e)
|
|
Excludes unrealized gains (losses) on interest rate derivatives.
|
(f)
|
|
Includes revenue and operating expenses and excludes depreciation
and amortization of other assets.
|
(g)
|
|
Net income attributable to noncontrolling interests of Chesapeake
Granite Wash Trust and CHK Cleveland Tonkawa L.L.C.
|
(h)
|
|
Includes capital expenditures for drilling and completion,
acquisition of unproved properties, geological and geophysical costs
and other property and plant and equipment.
|
Copyright Business Wire 2015