During the Q2 conference calls this week, some enlightening comments were made by oil and gas company CEOs.

Chesapeake Energy (NYSE:CHK) CEO Doug Lawler examines 2019 goals

Q: Can you talk about 2019 and what the broad parameters of how that is going to look. It sounds like you guys are planning to stop the outspending versus cash flow and now spend within cash flow. And is that the right read on 2019? And what’s the kind of commodity price at which we should think about that being a valid read? And how are you – I know it’s early, but how are you projecting oil volumes to grow and your overall volumes to grow?

Chesapeake Energy CEO Robert Douglas Lawler: Sure, We’re happy to provide a little more clarity with that. And as we’ve stated, we anticipate our 2019 oil volumes to grow by 10% and this recognition of our ability with the remaining assets post Utica divestiture of being able to replace that EBITDA within a year speaks to the capital efficiency and the cash flow generating capability of our assets.

As we look forward to 2019, the reduction in our interest expense, it will help us as we pay down some of our debt. But we anticipate that that free cash flow neutrality is – as a primary target will be something that we have to continue to look at. And as noted, in 2019, we aren’t forecasting any major asset sales. But through our own operations from our existing assets, we expect that production growth will help us in reducing any outspend.

Nick’s point on the sustainable free cash flow at this point and you look to 2019, we will accomplish that principally through our organic production growth, but we will also have and continue to look at smaller asset sales and other opportunities for us to generate cash.

What we’re excited about is that, as I noted, each of the assets are free cash flow positive today, with the exception of the Powder, and the oil’s growth, strength there, we clearly will achieve that in 2020, but targeting with the team to try to achieve that in 2019.

So, our objective to be free cash flow positive is very strong. And from an operating cash flow basis, we’re there. When you look at all the other corporate liabilities that we have, we’re making excellent progress on that and expect to share good results with you as we progress.

Anadarko Petroleum (NYSE: APC) – Delware goal is $8 million per well, DJ is $3 million

Q: What are your current well costs in each basin for the second quarter? What was your AFE or spending in Delaware and DJ?

Executive Vice President of U.S. Onshore Operations Daniel E. Brown: So, from a Delaware standpoint, we’ve communicated previously we’ve got around $8 million is what we expect per copy once we’re in the development mode. We’re higher than that now, as we’ve communicated. It’s closer to $10 million. As we think about DJ, it’s I’d say sort of tilted to $3 million but it depends on the lateral length. And so, the longer wells obviously cost you more, the shorter wells are a little bit less. But think of it as around $3 million.

Q: As you go into 2019, does the Gulf of Mexico pick up a little bit more relative capital versus the onshore business?

Chairman, President and Chief Executive Officer Robert A. Walker: I’d say it’s more of a steady state, but if the options are such that we feel like we want to change that, we can, picking up a spot rig is not particularly difficult. So, I wouldn’t read too much into the implied rig schedule suggesting activity. But I think for us, Gulf of Mexico is two things, it’s more of a steady-state environment that throws off a lot of free cash flow, and that’s real attractive. And if you’re right, we see a tremendous price differential between WTI, LLS, and Brent, where the waterborne has a tremendous advantage, it’s just going to throw off more free cash flow. And I think that’s really the state that we see ourselves in.

Q: At least on our numbers, we’re pretty much in line with strip for the next three or four years, I guess. We still see substantial free cash if you maintain, which I expect you will, your capital discipline. Also, the $1 billion increase in the buyback is terrific. But how do you think about that going forward? It seems to me that you could reload that for a pretty much an extended period. And I’ll leave it there. Thanks.

Chairman, President and Chief Executive Officer Robert A. Walker: Yeah, I think you’re seeing it consistent with the way we see it and hopefully we’re both right. But we definitely believe the approach we’re taking today has tremendous durability. So, we don’t see it as something that’s just very temporary. Obviously, if oil backs up to $40, we’re going to be in a situation like many where we’re going to rethink what we want to do with our capital investments. But in a $50-plus environment and we’re throwing off a lot of free cash flow, there’s tremendous durability to buying back stock, retiring debt, and periodically looking at increasing our dividend which we think, coupled with the attractive growth that we can throw off at $50 as the steady state, is a pretty good business model.

Q: In the Delaware, can you take us through the next year in terms of how you expect your productivity and efficiency to evolve? Specifically, what your expectations are for the percent of your overall rig fleet drilling the multi-well pads, where you think lateral length can go, any shifts in completion methodology? And then you highlighted the goal of $8 million well costs from $10 million. When do you expect to achieve that?

Executive Vice President of U.S. Onshore Operations Daniel E. Brown: Thanks for the question. I’ll try to address them and if I miss one along the way, just remind me afterwards. Obviously, from a – since you’re talking about over the course of the next year or so, clearly our capital plans for 2019 we’ll be talking about in more detail in the fourth quarter. So, I won’t go into too much detail there. But from a general standpoint, we have been, we’ve been working our gen two completions which are, essentially, like some others in the industry, higher water content, higher proppant, closer spacing. We’ve been pleased with the performance we see there. I anticipate that that will be our completion style as we move through certainly the foreseeable future. Our pad development has been, I would say, hovering around 50% currently for 2018. But I’ll say the pads we’ve been able to do aren’t – that’s more than one well. And so, some of these pads are only two-well pads which gets us some efficiency, but not the significant efficiency increases we would expect to see as we get to really substantial multi-well pads which is what we’re looking forward to doing. So, four or five wells per pad is obviously going to be much more efficient for us as we go to two.

So, as we look forward from here, we should see the amount of wells that we’re drilling on pad increase, and the actual wells per pad to increase, both of which will then drive increasing efficiency through the system. So, that’s what I’d say on that. Hopefully I got everything.

Q – Yeah. All but maybe the one, which is that $8 million well cost goal. When would you expect to achieve that?

Executive Vice President of U.S. Onshore Operations Daniel E. Brown: Yeah. So, we’re currently thinking over the course of – as we get to our multi-well pad developments where we’re doing four to five wells per pad, that’s what we’re anticipating. We think over the course of the next, say, two or three years we should be transitioning over where substantially all of our development is sort of in that kind of place. And so that’s how we’d expect that to work over time. So, once we’re doing four to five wells per pad, that’s the type of well costs you should see and we think that transition is going to take place over the next few years.


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