Chesapeake Energy Corporation (NYSE:CHK) today announced details
of its 2014 Outlook and capital program.
- Expected total capital expenditures
to range from $5.2 – $5.6 billion
- Projected production growth of 8 –
10%, adjusted for asset sales
- Estimated per-unit production and
G&A expenses to decline 10% and 25%, respectively, year over
year
- Targeted long-term production growth
per debt-adjusted share of 5 – 9% annually
Doug Lawler, Chesapeake’s Chief Executive Officer, said, "2013
was a transformational year for the company and its stakeholders.
The Chesapeake team worked diligently on several major initiatives
designed to ensure that our processes and practices maximize
returns from our exceptional asset base. We have established
specific strategic goals and metrics that we believe will drive us
toward top-quartile operational, financial and shareholder return
performance among our peers. Disciplined capital allocation, budget
and cost leadership programs are now in place, and I am very
excited about Chesapeake’s opportunity to become a differential
investment and industry partner of choice in 2014 and beyond."
Capital Program and Production Outlook
Chesapeake is budgeting total capital expenditures in the range
of $5.2 – $5.6 billion in 2014, which represents a 20% reduction
from the midpoint of Chesapeake’s 2013 capital expenditure Outlook
range. After adjusting for 2013 asset sales, the company expects to
generate 8 – 10% year-over-year production growth in 2014,
consisting of 8 – 12% oil production growth, 44 – 49% natural gas
liquids production growth and 4 – 6% natural gas production growth.
On an absolute basis, Chesapeake is targeting 2014 production
growth of 2 – 4%, which implies an average daily production rate of
680 – 695 thousand barrels of oil equivalent (mboe).
Chesapeake plans to spud approximately 1,100 gross operated
wells in 2014, which is relatively unchanged from 2013 activity
levels. The company plans to connect approximately 1,300 gross
operated wells to sales in 2014, or approximately 115 fewer wells
than in 2013. Lawler commented, "Our improving capital efficiency
has made it possible for us to forecast similar adjusted production
growth in 2014 compared to 2013, despite a substantial reduction in
capital expenditures and approximately 8% fewer operated wells
expected to be connected to sales."
Cost Overview
As a result of ongoing cost control initiatives, Chesapeake
anticipates lower per-unit production and general and
administrative (G&A) expenses in 2014. Production expenses are
expected to range from $4.25 – $4.75 per barrel of oil equivalent
(boe), down approximately 10% year over year from the midpoint of
Chesapeake’s 2013 production expense Outlook range. G&A
expenses (excluding restructuring and other termination benefits)
are estimated to be $1.35 – $1.60 per boe, down approximately 25%
year over year from the midpoint of Chesapeake’s 2013 G&A
expense Outlook range.
Lawler concluded, "We are encouraged by the progress we have
made during the second half of 2013, and I look forward to our
efforts yielding strong financial results in 2014. While our
guidance today does not reflect the impact of potential
divestitures, we continue to pursue opportunities to high-grade our
portfolio through asset sales. We believe these transactions will
be value accretive and enable us to further reduce financial
complexity and improve overall leverage. Over the last eight
months, we have conducted an extensive review of Chesapeake’s
portfolio. Due to the size and quality of the asset base, I am
confident that by remaining focused on our strategic priorities we
can deliver long-term production growth per debt-adjusted share of
5 – 9% annually, while maintaining a disciplined capital spending
profile."
A complete summary of the company’s guidance for 2014 is
provided in the Outlook dated February 6, 2014, which is attached
to this release as Schedule "A" beginning on Page 4.
Key Play Information
The following table details December 2013 average production
rates, year-end drilled well inventory, estimated 2014 exploration
and production (E&P) capital expenditures and 2014 estimated
operated rig count by play:
Dec '13 Avg. 12/31/2013
2014E 2014E Daily Net Drilled Well %
of Avg. Production Inventory Total
E&P Operated Play (mboe/d)
(Gross Op'd) Capex(1)
Rig Count Eagle Ford 90 109 ~35% 15 - 18
Mid-Continent(2) 100 32 ~20% 15 - 17 Utica 35 195 ~15% 7 - 9
Marcellus North 141 112 ~10% 6 - 7 Haynesville 90 11 ~10% 7 - 9 PRB
Niobrara 7 46 ~5% 3 Marcellus South 52 47 <5% 1 Barnett 74 58
<5% 1 Other 60 - - -
Total 649 610
55-65 (1) Net of Utica and PRB drilling carries;
includes drilling, completion, leasehold, geological and
geophysical costs and capitalized G&A excludes capitalized
interest (2) Includes: Mississippian Lime, Cleveland, Tonkawa,
Colony and Texas Panhandle Granite Washes and other Anadarko plays
2014 Analyst Day
Chesapeake will host its 2014 Analyst Day on Friday, May 16,
2014 at its headquarters in Oklahoma City. The meeting will be
webcast live on Chesapeake's website for those who are unable to
attend.
2014 Outlook and Capital Program Conference Call
Information
A conference call to discuss this release has been scheduled for
Thursday, February 6, 2014, at 9:00 am EST. The telephone number to
access the conference call is 913-312-1521 or toll-free
888-264-8893. The passcode for the call is 7669165.
We encourage those who would like to participate in the call to
place calls between 8:50 and 9:00 am EST. For those unable to
participate in the conference call, a replay will be available for
audio playback at 2:00 pm EST on Thursday, February 6, 2014, and
will run through 2:00 pm EST on Thursday, February 20, 2014. The
number to access the conference call replay is 719-457-0820
or toll-free 888-203-1112. The passcode for the replay is
7669165. The conference call will also be webcast live on
Chesapeake’s website at www.chk.com in the "Events” subsection of
the "Investors” section of the company’s website. The webcast of
the conference will be available on the company’s website for one
year.
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 natural gas and oil assets
onshore in the U.S. The company also owns substantial marketing,
compression and oilfield services 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 that give our current
expectations or forecasts of future events. They include production
forecasts, estimates of operating costs, planned development
drilling, expected capital expenditures, expected efficiency gains,
projected operating cash flow, business strategy and other plans
and objectives for future operations. 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
assumptions or by known or unknown risks and uncertainties.
Factors that could cause actual results to differ materially
from expected results are described under "Risk Factors” in Item 1A
of our 2012 annual report on Form 10-K filed with the U.S.
Securities and Exchange Commission on March 1, 2013. These risk
factors include the volatility of natural gas, oil and NGL prices;
the limitations our level of indebtedness may have on our financial
flexibility; declines in the prices of natural gas and oil
potentially resulting in a write-down of our asset carrying values;
the availability of capital on an economic basis to fund reserve
replacement costs; our ability to replace reserves and sustain
production; uncertainties inherent in estimating quantities of
natural gas, oil and NGL reserves and projecting future rates of
production and the amount and timing of development expenditures;
our ability to generate profits or achieve targeted results in
drilling and well operations; leasehold terms expiring before
production can be established; hedging activities resulting in
lower prices realized on natural gas, oil and NGL sales; the need
to secure hedging liabilities and the inability of hedging
counterparties to satisfy their obligations; drilling and operating
risks, including potential environmental liabilities; legislative
and regulatory changes adversely affecting our industry and our
business, including initiatives related to hydraulic fracturing,
air emissions and endangered species; oilfield services shortages,
gathering system and transportation capacity constraints and
various transportation interruptions that could adversely affect
our revenues and cash flow; losses possible from pending or future
litigation and regulatory investigations; and cyber attacks
adversely impacting our operations. 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. 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 this
information, except as required by applicable law.
SCHEDULE "A”
MANAGEMENT’S OUTLOOK AS OF FEBRUARY 6,
2014
Chesapeake periodically provides management guidance on certain
factors that affect the company’s future financial performance.
Please note that the company has changed its oil and natural gas
unit equivalent reporting convention to oil equivalent. Combined
oil, natural gas and NGL volume amounts are shown below in boe
rather than mcfe.
Chesapeake Energy Corporation
Consolidated Projections
Year Ending12/31/14
Absolute Production Growth:(a) Liquids 14 – 18% Oil 1 – 5% NGL(b)
40 – 45% Natural gas (2) – 0% Total production 2 – 4% Daily
Equivalent Rate – mboe 680 – 695 NYMEX Price(c) (for calculation of
realized hedging effects only): Oil - $/bbl $90.40 Natural gas -
$/mcf $4.16 Estimated Realized Hedging Effects(d) (based on assumed
NYMEX prices above): Oil - $/bbl ($2.80) Natural gas - $/mcf
($0.07) Estimated Gathering/Marketing/Transportation/Basis
Differentials to NYMEX Prices: Oil - $/bbl $2.80 – 4.80 NGL - $/bbl
$63.00 – 67.00 Natural gas - $/mcf $1.60 – 1.70 Operating Costs per
Boe of Projected Production: Production expense $4.25 – 4.75
Production taxes $0.85 – 0.95 General and administrative(e) $1.20 –
1.40 Stock-based compensation (noncash) $0.15 – 0.20 DD&A of
natural gas and liquids assets $10.50 – 11.50 Depreciation of other
assets $1.20 – 1.30 Interest expense(f) $0.95 – 1.05 Other ($
millions): Marketing, gathering and compression net margin(g) $50 –
70 Oilfield services net margin(g) $175 – 225 Net income
attributable to noncontrolling interests and other(h) ($160 – 190)
Book Tax Rate 38% Weighted Average Shares Outstanding (in
millions): Basic 657 – 661 Diluted 767 – 771 Operating Cash Flow
before Changes in Assets and Liabilities ($ in millions)(i) (j)
$5,100 – 5,300 Total Capital Expenditures ($ in millions) $5,200 –
5,600
a) Growth ranges based on the midpoint of company Outlook issued
on 11/6/13.
b) Assumes ethane recovery in the Utica and Southern Marcellus
to fulfill Chesapeake’s pipeline commitments, no ethane recovery in
the Rockies, minimal ethane recovery in the Eagle Ford and partial
ethane recovery in the Mid-Continent.
c) NYMEX natural gas and oil prices have been updated for actual
contract prices through February and January, respectively.
d) Includes expected settlements for commodity derivatives
adjusted for option premiums. For derivatives closed early,
settlements are reflected in the period of original contract
expiration.
e) Excludes expenses associated with stock-based compensation
and restructuring and other termination benefits.
f) Does not include gains (losses) on interest rate derivatives
for settlement periods beyond 2014.
g) Includes revenue and operating costs and excludes
depreciation and amortization of other assets.
h) Net income attributable to noncontrolling interests of
Chesapeake Granite Wash Trust, CHK Utica, LLC and CHK Cleveland
Tonkawa, LLC.
i) A non-GAAP financial measure. We are unable to provide
reconciliation to projected cash provided by operating activities,
the most comparable GAAP measure, because of uncertainties
associated with projecting future changes in assets and
liabilities.
j) Assumes NYMEX prices on open contracts of $4.00 per mcf and
$90.00 per bbl and production growth rate ranges as shown
above.
Natural Gas, Oil and NGL Hedging Activities
Chesapeake enters into natural gas, oil and NGL derivative
transactions in order to mitigate a portion of its exposure to
adverse changes in market prices. Please see the quarterly reports
on Form 10-Q and annual reports on Form 10-K filed by Chesapeake
with the SEC for detailed information about derivative instruments
the company uses, its quarter-end and year-end derivative positions
and accounting for natural gas, oil and NGL derivatives.
The company’s natural gas hedging positions as of January 31,
2014 were as follows:
Open Natural Gas Swaps; Gains (Losses)
from Closed Natural Gas Trades and Call Option Premiums
Open
Swaps
(bcf)
Avg. NYMEX
Price of
Open Swaps
Total Gains (Losses) from
Closed Trades and Premiums
for Call Options
($ in millions)
Q1 2014 169 $ 4.36 $ (26 ) Q2 2014 106 4.08
(12 ) Q3 2014 111 4.08 (15 ) Q4 2014 111
4.08 (21 ) Total 2014 497
$ 4.18 $ (74 ) Total 2015 44
$ 4.53 $ (131 ) Total 2016 – 2022 0
$ — $ (187 )
Natural Gas Three-Way Collars
Open
Collars
(bcf)
Avg. NYMEX
Sold Put Price
Avg. NYMEX
Bought Put Price
Avg. NYMEX
Ceiling Price
Q1 2014 48 $ 3.57 $ 4.08 $ 4.39 Q2 2014 51 3.57 4.09 4.38 Q3 2014
57 3.55 4.09 4.38 Q4 2014 71 3.49
4.11 4.37 Total 2014
227 $ 3.54 $ 4.09
$ 4.38 Total 2015 174 $ 3.38 $
4.21 $ 4.41
Natural Gas Swaptions
Swaptions
(bcf)
Avg. NYMEX
Strike Price
Q1 2014 0 $ — Q2 2014 12 4.80 Q3 2014 0 — Q4 2014
0 — Total 2014 12
$ 4.80
Natural Gas Written Call
Options
Call Options
(bcf)
Avg. NYMEX
Strike Price
Total 2016 – 2020 193 $ 9.92
Natural Gas Basis Protection
Swaps
Volume
(bcf)
Avg. NYMEX plus/(minus) Q1 2014 8 $ 1.68 Q2 2014 20 (0.49 )
Q3 2014 20 (0.50 ) Q4 2014 12 (0.44 )
Total 2014 60 $ (0.19 ) Total 2015 31
$ (0.34 ) Total 2016 - 2022 8 $
(1.02 )
The company’s crude oil hedging positions as of January 31, 2014
were as follows:
Open Crude Oil Swaps; Gains (Losses)
from Closed Crude Oil Trades and Call Option Premiums
Open
Swaps
(mbbls)
Avg. NYMEX
Price of
Open Swaps
Total Gains (Losses) from
Closed Trades and Premiums for Call
Options
($ in millions)
Q1 2014 7,217 $ 94.37 $ (44 ) Q2 2014 7,114
93.97 (46 ) Q3 2014 5,137 93.57 (48 ) Q4 2014 5,112
93.58 (49 ) Total 2014
24,580 $ 93.92 $ (187 ) Total 2015
693 $ 89.48 $ 252 Total
2016 – 2022 0 $ — $ 117
Crude Oil Written Call Options
Call Options
(mbbls)
Avg. NYMEX
Strike Price
Q1 2014 612 $ 83.53 Q2 2014 619 83.53 Q3 2014 626
83.53 Q4 2014 626 83.53 Total 2014
2,483 $ 83.53 Total 2015 15,823
$ 93.12 Total 2016 – 2017 24,220 $
100.07
Crude Oil Basis Protection
Swaps
Volume (mbbls) Avg. NYMEX plus Q1 2014 90 $ 6.00 Q2
2014 91 $ 6.00 Q3 2014 92 $ 6.00 Q4 2014 92 $ 6.00 Total
2014 365 $ 6.00
Chesapeake Energy CorporationInvestors:Gary T. Clark,
CFA, 405-935-8870ir@chk.comorMedia:Gordon Pennoyer,
405-935-8878media@chk.com
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