Commodities price drop results in $14.856 billion net loss for 2015; focus on completions in 2016; targeting to put 330-370 wells on production in 2016; divestitures continue
Chesapeake energy has been a beacon of attention recently in the oil and gas industry due to their alleged financial struggles with analysts pinpointing them as a bankruptcy candidate. Despite this criticism, Chesapeake keeps on ticking. On February 24, 2016 the company reported 2015 year-end and fourth quarter earnings as well as 2016 guidance. Highlights from the report 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
“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,” CEO Doug Lawler said.
Financial Performance
Chesapeake reported a net loss of $14.856 billion, or $22.43 per fully diluted share for 2015. About 98% of those losses were due to impairment charges from lower oil prices the company said. “Adjusting for these items, 2015 full year adjusted net loss available to common stockholders was $329 million,” Chesapeake said in its release.
Adjusted EBITDA for the full year was down 52% from 2014, with the company reporting adjusted EBITDA of $2.385 billion for 2015 compared to $4.945 billion in 2014. Operating cash flow was $2.268 billion, down 56% year-over-year. The lower EBITDA and operating cash flow were from lower production and lower prices, according to Chesapeake. The company said these losses were partially offset by higher realized hedging gains and lower production expenses, G&A and production taxes.
Realized hedging gains on the company’s production was approximately $1.3 billion for the year, compared to a hedging loss of $375 million for full-year 2014.
Chesapeake’s metrics in EnerCom’s E&P Weekly Benchmarking Report also indicate the company is under some financial strain. CHK has a relatively low EBITDA margin of 26% compared to a group median of 52%. The company’s asset intensity of 395% is also much higher than the group median of 103%.
Capex Guidance Lowered for 2016
Chesapeake has set its 2016 capital expenditures budget, including capitalized interest, at between $1.3 to $1.8 billion, a 57% decline from its 2015 spend.
The company said its 2016 spend 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.”
Chesapeake added that its 2016 capital program will be dedicated “to more completions and less drilling,” with total completion spending accounting for about 70 percent of its total drilling and completion program.
The company expects to place 330 to 370 wells on production, resulting in total production that declines between 0 to 5 percent compared to 2015, after adjusting for asset sales.
Chesapeake added that it has hedged more than 590 billion cubic feet of its projected 2016 natural gas production at about $2.84 per mcf and more than 19 million barrels of its projected 2016 oil production at about $47.79 per barrel.
Analyst Commentary
Raymond James 02.25.2016
Chesapeake rallied on news that it has outlined a plan to divest up to $1.5
billion in non-core assets in 2016, while also expecting 2016 to remain relatively flat despite a
57% reduction to capex as it draws down its drilled but uncompleted (DUC) well backlog and
brings back some shut-in production. Despite this, 2017 will likely prove to be very challenging
for the company, as a large amount of long term debt comes due and cash outspend is still
likely to remain elevated. Combined with our relatively bearish view on natural gas, we are
maintaining our Underperform rating.
