Chesapeake Energy Corporation (NYSE: CHK) today reported
financial and operational results for the 2013 full year and fourth
quarter. Key information related to the 2013 full year is as
follows:
- Adjusted net income per fully
diluted share increases to $1.50 in the 2013 full year from $0.61
in the 2012 full year
- Adjusted ebitda increases 34% year
over year to $5.016 billion
- Average daily production rises 3%
year over year to 669,600 boe per day
- Average daily production, adjusted
for asset sales, increases 11% year over year
- Combined 2013 per unit production
and G&A expenses decline 15% year over year
- 2013 year-end proved reserves
increase to 2.7 bboe
- 2013 asset sales total $4.4 billion;
2014 asset sales already completed or anticipated total
approximately $1 billion, excluding possible oilfield services
division and other strategic asset dispositions
Doug Lawler, Chesapeake’s Chief Executive Officer, said, "2013
was a foundational year in which we focused on optimizing our
business processes, implementing a disciplined capital budget,
decreasing per unit cash costs, selling noncore assets and reducing
liabilities. We believe that the impact of these efforts on our
capital efficiency and returns will become even more evident in
2014 as we continue to drive well performance up and well costs and
per unit cash costs down. In 2014 we plan to reduce drilling and
completion costs, before drilling carry credits, by nearly $900
million, while still generating comparable production growth year
over year."
For the 2013 full year Chesapeake reported net income available
to common stockholders of $474 million, or $0.73 per fully diluted
share. These results include the after-tax impact of the following
items typically excluded by securities analysts in their earnings
estimates:
- a charge of $341 million for the
impairment of certain of the company’s property and equipment and
other assets;
- a $154 million charge for restructuring
and other termination costs;
- charges of $120 million for the
purchase of debt and the extinguishment of a lease obligation in
the Fort Worth, Texas area;
- net losses of $95 million on certain
investments, primarily related to our proportionate share of an
estimated impairment recorded by FTS International, Inc. on its
non-depreciable assets;
- a net gain of $187 million on sales of
certain of the company’s fixed assets; and
- noncash unrealized gains of $100
million from the company’s derivative instruments.
In total, these items reduced net income available to common
stockholders for the 2013 full year by approximately $422 million
on an after-tax basis. Adjusting for these items, 2013 full-year
net income available to common stockholders was $896 million, or
$1.50 per fully diluted share, which compares to adjusted net
income available to common stockholders of $285 million, or $0.61
per fully diluted share, in the 2012 full year. This increase is
primarily the result of substantially higher year-over-year oil
production, higher realized oil, natural gas and natural gas
liquids (NGL) prices, and lower per unit production and general and
administrative (G&A) expenses.
For the 2013 full year the company reported adjusted ebitda of
$5.016 billion, an increase of 34% year over year. Operating cash
flow, which is cash flow provided by operating activities before
changes in assets and liabilities, was $4.956 billion in 2013, an
increase of 26% year over year. Full-year 2013 operating cash flow
was negatively impacted by approximately $120 million due to the
extinguishment of certain financing obligations in the Fort Worth,
Texas area, $73 million of employee restructuring and other
termination costs as well as $63 million of charges primarily
related to the termination of rig lease and other commitments. The
charges were the result of the company's strategic decision to
reduce leverage and balance sheet complexity and are excluded from
adjusted net income.
2013 Full-Year Average Daily Production Increases 3% Year
over Year to 670 Mboe per Day; Oil Production Increases 32% Year
over Year to More Than 112 Mbbls per Day
Chesapeake’s daily production for the 2013 full year averaged
approximately 669,600 barrels of oil equivalent (boe), an increase
of 3% compared to the 2012 full year. The company’s 2013 average
daily production consisted of approximately 112,600 barrels (bbls)
of oil, 57,200 bbls of NGL and 3.0 billion cubic feet (bcf) of
natural gas.
In 2013 average daily oil production increased 32% year over
year, average daily NGL production increased 19% year over year and
natural gas production decreased 3% year over year. Liquids
accounted for 25% of total production, up from 20% during the 2012
full year. Adjusted for asset sales, the company's total 2013
production increased approximately 11% year over year.
2013 Fourth Quarter Results
For the 2013 fourth quarter Chesapeake reported a net loss
available to common stockholders of $159 million, or $0.24 per
fully diluted share. Items typically excluded by securities
analysts in their earnings estimates decreased 2013 fourth quarter
net income by approximately $320 million on an after-tax basis.
Adjusting for these items, 2013 fourth quarter net income available
to common stockholders was $161 million, or $0.27 per fully diluted
share, which compares to adjusted net income available to common
stockholders of $146 million, or $0.26 per fully diluted share, in
the 2012 fourth quarter.
For the 2013 fourth quarter Chesapeake reported adjusted ebitda
of $1.132 billion, an increase of 4% year over year. Operating cash
flow was $995 million, a decrease of 13% year over year. Operating
cash flow was negatively impacted in the 2013 fourth quarter by
approximately $120 million due to the extinguishment of certain
financing obligations in the Fort Worth, Texas area, $34 million of
employee restructuring and other termination costs, as well as $37
million of charges primarily related to the termination of rig
lease commitments. The charges were the result of the company's
strategic decision to reduce leverage and balance sheet complexity
and are excluded from adjusted net income.
2013 full-year and fourth quarter adjusted net income available
to common stockholders, operating cash flow, ebitda and adjusted
ebitda are non-GAAP financial measures. Reconciliations of these
measures to comparable financial measures calculated in accordance
with generally accepted accounting principles are provided on pages
15 – 19 of this release.
2013 Fourth Quarter Average Daily Production Increases 2%
Year over Year to 665 Mboe per Day; Oil Production Increases 15%
Year over Year to More Than 111 Mbbls per Day
Chesapeake’s daily production for the 2013 fourth quarter
averaged approximately 665,100 boe, an increase of 2% from the 2012
fourth quarter and a 1% decrease from the 2013 third quarter. This
decrease is primarily due to a planned reduction in well
connections during the fourth quarter as the company completed most
of its well inventory reduction initiatives in the 2013 second and
third quarters. Severe weather also negatively impacted the
company's production in October and December. Average daily
production in the 2013 fourth quarter consisted of approximately
111,300 bbls of oil, 63,700 bbls of NGL and 2.9 bcf of natural
gas.
For the 2013 fourth quarter average daily oil production
increased 15% year over year and decreased 7% sequentially, average
daily NGL production increased 26% year over year and 9%
sequentially and natural gas production decreased 3% year over year
and 1% sequentially. Liquids accounted for 26% of total production
during the 2013 fourth quarter, up from 23% during the 2012 fourth
quarter and down from 27% during the 2013 third quarter. Adjusted
for asset sales, the company's total production in the 2013 fourth
quarter increased approximately 10% year over year.
Asset Sales Update
In 2014 the company has already received $209 million of net
proceeds from the sale of its common equity ownership interest in
Chaparral Energy, Inc. Additionally, in connection with certain
asset sales in 2012 and 2013, the company believes that it will
receive proceeds in excess of $150 million during 2014 that were
held back for title review or other purposes at the time of
closing. Currently, Chesapeake is marketing or has under contract
sales of certain real estate and other non-E&P assets,
excluding its oilfield services division, Chesapeake Oilfield
Services (COS), which are expected to generate proceeds of
approximately $650 million during 2014. Together, the items listed
above are expected to generate proceeds of approximately $1
billion, and the company believes the sale of these assets will
have minimal impact on its 2014 operating cash flow guidance.
Domenic J. Dell'Osso, Jr., Chesapeake's Chief Financial Officer,
said, "In 2013 we improved our net working capital, net long-term
debt and other long-term liability position by more than $900
million, in aggregate. As outlined, we have good visibility into
approximately $1 billion of proceeds from asset sales in 2014. We
are continuing to review and refine our portfolio for assets that
fit best with the company’s strategy of profitable growth from
captured resources and expect to have additional asset dispositions
in 2014, potentially including a spin-off of COS to Chesapeake
shareholders or an outright sale. Closing such incremental
transactions would enable us to further reduce financial complexity
and overall leverage."
Capital Spending and Cost Overview
During the 2013 full year Chesapeake operated an average of 71
rigs and invested approximately $5.5 billion in drilling and
completion activities. This level of capital spending represented a
decrease of 38% compared to the 2012 full year. Chesapeake spud a
total of 1,097 gross wells and completed 1,359 gross wells during
the 2013 full year, compared to 1,653 gross wells spud and 1,562
gross wells completed during the 2012 full year.
During the 2013 fourth quarter Chesapeake operated an average of
57 rigs and invested approximately $1.2 billion in drilling and
completion activities. This level of capital spending represented a
decrease of approximately $100 million, or 8%, compared to the 2013
third quarter. Chesapeake spud a total of 239 gross wells and
completed 274 gross wells during the 2013 fourth quarter, compared
to 253 gross wells spud and 321 gross wells completed during the
2013 third quarter. During 2014 Chesapeake plans to operate 55 – 65
rigs.
Net expenditures for the acquisition of unproved properties were
approximately $60 million during the 2013 fourth quarter and
approximately $205 million for the 2013 full year. Other capital
expenditures were approximately $390 million during the 2013 fourth
quarter and approximately $1.0 billion for the 2013 full year.
These include approximately $235 million of expenditures in the
2013 fourth quarter to purchase rigs and compressors subject to
sale leaseback arrangements as part of a strategic initiative to
reduce leverage and facilitate asset sales and possible spin-off or
sale of COS.
Average production expenses during the 2013 full year were $4.74
per boe, a decrease of 14% year over year. G&A expenses
(excluding share-based compensation and restructuring and other
termination costs) during the 2013 full year were $1.62 per boe, a
decrease of 17% year over year.
Average production expenses during the 2013 fourth quarter were
$4.62 per boe, an increase of 2% from the 2013 third quarter.
G&A expenses (excluding share-based compensation and
restructuring and other termination costs) during the 2013 fourth
quarter were $1.79 per boe, an increase of 5% from the 2013 third
quarter.
A complete summary of the company’s guidance for 2014 was
provided in the Outlook dated February 6, 2014 and is attached to
this release as Schedule "A” beginning on Page 20.
Total Proved Reserves Increase to 2.7 Bboe
The company's December 31, 2013 proved reserves were 2.7 billion
barrels of oil equivalent (bboe), a 2% increase from year-end 2012.
During 2013 Chesapeake added 332 million barrels of oil equivalent
(mmboe) through extensions and discoveries, net of downward
revisions primarily associated with the elimination of certain
future proved undeveloped locations. The company's year-end 2013
total proved reserves also increased by 162 mmboe due to the effect
of higher natural gas prices, and decreased by 189 mmboe as the
result of net divestitures. Chesapeake's proved developed reserves
as a percentage of total proved reserves increased to 68% at
December 31, 2013 from 57% at December 31, 2012. Additional
information on reserves changes can be found on Page 12.
The following table presents Chesapeake’s December 31, 2013
proved reserves, estimated future net cash flows from proved
reserves discounted at an annual rate of 10% before income taxes
(PV-10) and proved developed percentage using alternative pricing
methods.
Pricing Method
Natural Gas Price
($/mcf)
Oil Price
($/bbl)
Proved
Reserves
(Bboe)
PV-10
(billions)
Proved
Developed
Percentage
Trailing 12-month average (SEC)(a) $3.67 $96.82 2.678 $21.7 68%
12/31/13 average NYMEX strip(b) $4.34 $81.48 2.732 $22.2 69%
a) Reserve volumes estimated using
Securities and Exchange Commission (SEC) reserve recognition
standards and pricing assumptions based on the trailing 12-month
average first-day-of-the-month prices as of December 31, 2013. This
pricing yields estimated proved reserves for SEC reporting
purposes.
b) The 10-year average NYMEX strip is an
alternative pricing scenario that illustrates the sensitivity of
proved reserves to a different pricing assumption. Futures prices
represent an unbiased consensus estimate by market participants
about the likely prices to be received for future production.
Management believes that 10-year average NYMEX strip prices provide
a better indicator of the likely economic producibility of the
company’s proved reserves than the historical 12-month average
price.
Operational Update
The company continues to achieve strong operational results and
well cost reductions in each of its most active plays. Chesapeake
employs conservative choke management practices in several of its
key operating areas in order to maximize ultimate reservoir
recovery and optimize use of midstream capacity.
Eagle Ford Shale (South
Texas): Eagle Ford net production averaged
approximately 87,000 boe per day (191,000 gross operated boe per
day) during the 2013 fourth quarter. This production represents an
increase of 39% year over year and a decrease of 8% sequentially.
Fourth quarter production was adversely affected by weather impacts
as well as a planned inventory reduction that occurred during the
2013 second and third quarters. Approximately 68% of the company’s
Eagle Ford production in the 2013 fourth quarter was oil, 14% was
NGL and 18% was natural gas.
Chesapeake operated an average of 12 rigs and connected 65 gross
wells to sales during the 2013 fourth quarter in the Eagle Ford,
compared to 13 average operated rigs and 100 gross wells connected
to sales during the 2013 third quarter. The average peak daily
production rate of the 65 wells that commenced first production in
the Eagle Ford during the 2013 fourth quarter was approximately 800
boe per day.
As of December 31, 2013, Chesapeake had 862 producing wells and
109 wells awaiting pipeline or in various stages of completion in
the Eagle Ford.
During 2014 Chesapeake plans to reduce average completed well
costs in the Eagle Ford to $6.4 million or less per well, which
would represent an approximate 7% reduction year over year.
Production growth is expected to accelerate in the Eagle Ford
during the 2014 second quarter as the company substantially
increases its rig count and well connections.
Mid-Continent (Oklahoma, Texas
Panhandle, southern Kansas): Chesapeake's
production in the Mid-Continent comes primarily from five plays:
the Mississippi Lime, Granite Wash, Cleveland, Tonkawa and
Hogshooter. Aggregate net production from these plays during the
2013 fourth quarter averaged 104,000 boe per day (192,000 gross
operated boe per day), which was flat year over year and a decrease
of 4% sequentially. Approximately 32% of the company’s
Mid-Continent production during the 2013 fourth quarter was oil,
23% was NGL and 45% was natural gas.
During the 2013 fourth quarter Chesapeake operated an average of
17 rigs and connected 70 gross wells to sales, compared to 22
average operated rigs and 89 gross wells connected to sales during
the 2013 third quarter. The average peak daily production rate of
the 70 wells that commenced first production in the Mid-Continent
during the 2013 fourth quarter was approximately 875 boe per
day.
As of December 31, 2013, the company had 32 wells awaiting
pipeline connection or in various stages of completion in the
Mid-Continent.
As Chesapeake has optimized its drilling program and reduced its
rig count in the Mid-Continent, drilling success rates and program
rates of return have improved significantly. Given the reduction in
drilling activity coupled with 2013 asset sales, the company
anticipates that net production from the Mid-Continent will decline
during 2014 on a year-over-year basis.
Haynesville Shale (Northwest Louisiana,
East Texas): Chesapeake’s 2013 fourth quarter
average daily net production in the Haynesville was approximately
540 million cubic feet of natural gas equivalent (mmcfe) per day
(880 gross operated mmcfe per day), a decrease of 51% year over
year and 19% sequentially. All of the company's production in the
Haynesville consists of natural gas.
During the 2013 fourth quarter Chesapeake operated an average of
four rigs and connected 12 gross wells to sales, compared to two
average operated rigs and four gross wells connected to sales
during the 2013 third quarter. The average peak daily production
rate of the 12 wells that commenced first production in the
Haynesville during the 2013 fourth quarter was approximately 12.8
mmcfe per day.
As of December 31, 2013, Chesapeake had 11 wells awaiting
pipeline connection or in various stages of completion in the
Haynesville.
Utica Shale (eastern Ohio,
Pennsylvania, West Virginia): Utica net
production averaged approximately 189 mmcfe per day (345 gross
operated mmcfe per day) during the 2013 fourth quarter, an increase
of 309% year over year and 15% sequentially from the 2013 third
quarter.
During the 2013 fourth quarter Chesapeake operated an average of
nine rigs and connected 49 gross wells to sales in the Utica,
compared to 11 average operated rigs and 63 gross wells connected
to sales during the 2013 third quarter. The average peak daily
production rate of the 49 wells that commenced first production in
the Utica during the 2013 fourth quarter was approximately 7.7
mmcfe per day.
As of December 31, 2013, Chesapeake had drilled a total of 425
wells in the Utica, which included 230 producing wells and 195
wells awaiting pipeline connection or in various stages of
completion.
Midstream processing infrastructure build-out delays and
operational issues impacted Chesapeake's growth ramp in the Utica
during the second half of 2013 and will continue to have an impact
to a lesser degree in the first quarter of 2014. As a result of the
infrastructure and operational issues, the vast majority of
Chesapeake's wells that are connected to sales lines are on
restricted choke and have not been producing at full capacity.
Service resumed at the Natrium processing plant in January 2014,
and assuming the mid-year addition of the third phase of gas
processing at the Kensington facility, Chesapeake anticipates that
it will achieve net production of 700 mmcfe per day in the Utica by
year-end 2014.
Northern Marcellus Shale
(Pennsylvania): Chesapeake's production from the
northern Marcellus continued to grow during the 2013 fourth
quarter. Average daily net production in this play was
approximately 880 mmcfe per day (2,100 gross operated mmcfe per
day), an increase of 36% year over year and 7% sequentially. All of
the company's production in the northern Marcellus consists of
natural gas.
During the 2013 fourth quarter Chesapeake operated an average of
five rigs and connected 33 gross wells to sales, compared to five
average operated rigs and 37 gross wells connected to sales during
the 2013 third quarter. The average peak daily production rate of
the 33 wells that commenced first production in the northern
Marcellus during the 2013 fourth quarter was approximately 10.8
mmcfe per day.
As of December 31, 2013, Chesapeake had 112 wells awaiting
pipeline connection or in various stages of completion in the
northern Marcellus.
Chesapeake's wells in the northern Marcellus continue to exceed
expectations, and at current rig levels and projected natural gas
prices the company expects this region to contribute substantial
positive cash flow in 2014. In the three-year period ended December
31, 2013, net daily production from the northern Marcellus grew 56%
on a compounded annual basis.
Southern Marcellus Shale (Pennsylvania,
West Virginia): During the 2013 fourth quarter,
Chesapeake’s average daily net production in the southern wet-gas
portion of the Marcellus was approximately 285 mmcfe per day (460
gross operated mmcfe per day), an increase of 82% year over year
and 3% sequentially. Approximately 12% of the company’s southern
Marcellus production was oil, 18% was NGL and 70% was natural
gas.
During the 2013 fourth quarter Chesapeake operated an average of
two rigs and connected 13 gross wells to sales, compared to three
average operated rigs and 30 gross wells connected to sales during
the 2013 third quarter. The average peak daily production rate of
the 13 wells that commenced first production in the southern
Marcellus during the 2013 fourth quarter was approximately 8.1
mmcfe per day.
As of December 31, 2013, Chesapeake had 47 wells awaiting
pipeline connection or in various stages of completion in the
southern Marcellus.
Key Financial and Operational
Results
The table below summarizes Chesapeake’s
key financial and operational results during the 2013 fourth
quarter and 2013 full year and compares them to results in prior
periods.
Three Months Ended Full Year Ended
12/31/13 09/30/13 12/31/12
12/31/13 12/31/12 Oil equivalent production
(in mmboe) 61.2 62.0 60.3 244.4 237.0 Oil production (in mmbbls)
10.2 11.0 8.9 41.1 31.3 Average realized oil price ($/bbl)(a) 89.58
92.09 92.23 92.53 91.74 Oil as % of total production 17 18 15 17 13
NGL production (in mmbbls) 5.9 5.4 4.6 20.9 17.6 Average realized
NGL price ($/bbl)(a) 31.76 26.52 27.12 27.87 29.37 NGL as % of
total production 9 9 8 8 7 Liquids as % of realized revenue(b) 68
65 62 64 59 Liquids as % of unhedged revenue(b) 69 69 59 64 63
Natural gas production (in bcf) 271 273 280 1,095 1,129
Average realized natural gas price
($/mcf)(a)
1.90 2.26 2.07 2.23 2.07 Natural gas as % of total production 74 73
77 75 80 Natural gas as % of realized revenue 32 35 38 36 41
Natural gas as % of unhedged revenue 31 31 41 36 37 Production
expenses ($/boe) (4.62 ) (4.55 ) (4.96 ) (4.74 ) (5.50 ) Production
taxes ($/boe) (0.91 ) (0.99 ) (0.77 ) (0.94 ) (0.79 ) General and
administrative costs ($/boe)(c) (1.79 ) (1.71 ) (1.38 ) (1.62 )
(1.96 ) Share-based compensation ($/boe) (0.19 ) (0.21 ) (0.27 )
(0.24 ) (0.30 ) DD&A of natural gas and liquids properties
($/boe) (10.53 ) (10.52 ) (10.80 ) (10.59 ) (10.58 ) D&A of
other assets ($/boe) (1.32 ) (1.28 ) (1.18 ) (1.28 ) (1.28 )
Interest expense ($/boe)(a) (0.86 ) (0.65 ) (0.28 ) (0.65 ) (0.35 )
Marketing, gathering and compression net
margin ($ in millions)(d)
9 23 41 99 119
Oilfield services net margin ($ in
millions)(d)
52 38 16 159 142 Operating cash flow ($ in millions)(e) 995 1,413
1,138 4,956 3,920 Operating cash flow ($/boe) 16.26 22.80 18.88
20.28 16.54 Adjusted ebitda ($ in millions)(f) 1,132 1,325 1,088
5,016 3,754 Adjusted ebitda ($/boe) 18.51 21.38 18.06 20.52 15.84
Net income (loss) available to common
stockholders ($ in millions)
(159 ) 156 250 474 (940 ) Earnings (loss) per share – diluted ($)
(0.24 ) 0.24 0.39 0.73 (1.46 )
Adjusted net income available to common
stockholders ($ in millions)(g)
161 282 146 896 285 Adjusted earnings per share – diluted ($) 0.27
0.43 0.26 1.50 0.61
(a) Includes the effects of realized gains
(losses) from hedging, but excludes the effects of unrealized gains
(losses) from hedging.
(b) "Liquids” includes both oil and
NGL.
(c) Excludes expenses associated with
share-based compensation and restructuring and other termination
costs.
(d) Includes revenue and operating costs
and excludes depreciation and amortization of other assets, general
and administrative expenses, impairments of fixed assets and other,
and gains or losses on sales of fixed assets.
(e) Defined as cash flow provided by
operating activities before changes in assets and liabilities.
(f) Defined as net income before interest
expense, income taxes and depreciation, depletion and amortization
expense, as adjusted to remove the effects of certain items
detailed on Page 19.
(g) Defined as net income available to
common stockholders, as adjusted to remove the effects of certain
items detailed on Page 15.
2013 Fourth Quarter and Full-Year Financial and Operational
Results Conference Call Information
A conference call to discuss this release has been scheduled for
Wednesday, February 26, 2014, at 9:00 am EST. The telephone number
to access the conference call is 913-312-9330 or toll-free
888-801-6507. The passcode for the call is 9127661.
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 Wednesday, February 26, 2014, and
will run through 2:00 pm EST on Wednesday, March 12, 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
9127661. 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 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 10th 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.
Any separation of COS is subject to satisfaction of several
conditions, some of which are beyond our control, including market
conditions, board approvals, consents, regulatory review and
approvals, among others. There can be no assurance that the
proposed separation will lead to a sale or spin-off or any other
transaction, or that if any transaction is pursued, that it will be
consummated.
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, anticipated asset sales and proceeds to be
received therefrom, projected cash flow and liquidity, 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 include those 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, including
through planned asset sales, 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; adverse developments and losses in
connection with 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. Further, the timing of
and amount of proceeds from future asset sales, which are subject
to changes in market conditions and other factors beyond our
control, will affect our ability to reduce financial leverage and
complexity and enhance our liquidity. 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.
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
($ in millions, except per share
data)
(unaudited)
Three Months Ended December 31, Year Ended
December 31, 2013 2012
2013 2012 REVENUES: Natural gas, oil and NGL $
1,608 $ 1,657 $ 7,052 $ 6,278 Marketing, gathering and compression
2,689 1,721 9,559 5,431 Oilfield services 244 161 895
607 Total Revenues 4,541 3,539 17,506
12,316
OPERATING EXPENSES: Natural gas,
oil and NGL production 282 299 1,159 1,304 Production taxes 56 47
229 188 Marketing, gathering and compression 2,680 1,681 9,461
5,312 Oilfield services 193 145 736 465 General and administrative
121 99 457 535 Restructuring and other termination costs 45 3 248 7
Natural gas, oil and NGL depreciation,
depletion and amortization
644 651 2,589 2,507 Depreciation and amortization of other assets
80 71 314 304 Impairment of natural gas and oil properties — — —
3,315 Impairments of fixed assets and other 203 59 546 340 Net
gains on sales of fixed assets (12 ) (272 ) (302 ) (267 ) Total
Operating Expenses 4,292 2,783 15,437 14,010
INCOME (LOSS) FROM OPERATIONS 249 756
2,069 (1,694 )
OTHER INCOME (EXPENSE):
Interest expense (63 ) (14 ) (227 ) (77 ) Losses on investments
(189 ) (16 ) (226 ) (103 ) Gains (losses) on sales of investments —
31 (7 ) 1,092 Losses on purchases of debt and extinguishment of
other financing (123 ) (200 ) (193 ) (200 ) Other income 7 6
26 8 Total Other Income (Expense) (368 ) (193
) (627 ) 720
INCOME (LOSS) BEFORE INCOME TAXES
(119 ) 563 1,442 (974 )
INCOME TAX EXPENSE (BENEFIT):
Current income taxes 13 23 22 47 Deferred income taxes (58 ) 196
526 (427 ) Total Income Tax Expense (Benefit) (45 )
219 548 (380 )
NET INCOME (LOSS) (74 )
344 894 (594 ) Net income attributable to noncontrolling
interests (42 ) (44 ) (170 ) (175 )
NET INCOME (LOSS)
ATTRIBUTABLE TO CHESAPEAKE (116 ) 300 724 (769 )
Preferred stock dividends (43 ) (43 ) (171 ) (171 ) Premium
on purchase of preferred shares of a subsidiary — — (69 ) —
Earnings allocated to participating securities — (7 ) (10 )
—
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS $ (159 ) $ 250 $ 474 $ (940 )
EARNINGS (LOSS) PER COMMON SHARE: Basic $ (0.24 ) $ 0.39
$ 0.73 $ (1.46 ) Diluted $ (0.24 ) $ 0.39 $
0.73 $ (1.46 )
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (in millions): Basic 656
644 653 643 Diluted 656 704 653
643
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE
SHEETS
($ in millions)
(unaudited)
December 31,
2013 December 31, 2012 Cash and cash
equivalents $ 837 $ 287 Other current assets 2,819 2,661
Total Current Assets 3,656 2,948 Property and
equipment (net) 37,134 37,167 Other assets 992 1,496 Total
Assets $ 41,782 $ 41,611 Current liabilities $ 5,515
$ 6,266 Long-term debt, net of discounts 12,886 12,157 Other
long-term liabilities 1,834 2,485 Deferred income tax liabilities
3,407 2,807 Total Liabilities 23,642 23,715
Preferred stock 3,062 3,062 Noncontrolling interests 2,145 2,327
Common stock and other stockholders’ equity 12,933 12,507
Total Equity 18,140 17,896 Total Liabilities and
Equity $ 41,782 $ 41,611 Common Shares Outstanding
(in millions) 664 664
CHESAPEAKE ENERGY CORPORATION
CAPITALIZATION
($ in millions)
(unaudited)
December 31,
2013 December 31, 2012 Total debt, net of
unrestricted cash $ 12,049 $ 12,333 Preferred stock 3,062 3,062
Noncontrolling interests(a) 2,145 2,327 Common stock and other
stockholders’ equity 12,933 12,507 Total $ 30,189
$ 30,229 Total debt to capitalization ratio 40
% 41 %
(a) Includes third-party ownership as
follows:
CHK Cleveland Tonkawa, L.L.C. $ 1,015 $ 1,015 CHK Utica,
L.L.C. 807 950 Chesapeake Granite Wash Trust 314 356 Other 9
6 Total $ 2,145 $ 2,327
CHESAPEAKE ENERGY CORPORATION
ROLL-FORWARD OF PROVED RESERVES
12 MONTHS ENDED DECEMBER 31,
2013
(unaudited)
Mmboe(a)
Beginning balance, December 31, 2012 2,615 Production (244 )
Acquisitions 2 Divestitures (189 ) Revisions - changes to previous
estimates (192 ) Revisions - price 162 Extensions and discoveries
524 Ending balance, December 31, 2013 2,678
Proved reserves growth rate before acquisitions and divestitures 10
% Proved reserves growth rate after acquisitions and divestitures 2
% Proved developed reserves 1,809 Proved developed reserves
percentage 68 % PV-10 ($ in millions)(a) $ 21,676
(a) Reserve volumes and PV-10 value
estimated using SEC reserve recognition standards and pricing
assumptions based on the trailing 12-month average
first-day-of-the-month prices as of December 31, 2013 of $3.67 per
mcf of natural gas and $96.82 per bbl of oil, before field
differential adjustments.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF PV-10
($ in millions)
(unaudited)
December 31,
2013 December 31, 2012 Standardized
measure of discounted future net cash flows $ 17,390 $ 14,666
Discounted future cash flows for income taxes 4,286 3,107
Discounted future net cash flows before income taxes (PV-10) $
21,676 $ 17,773
PV-10 is discounted (at 10%) future net cash flows before income
taxes. The standardized measure of discounted future net cash flows
includes the effects of estimated future income tax expenses and is
calculated in accordance with Accounting Standards Codification
Topic 932. Management uses PV-10 as one measure of the value of the
company's current proved reserves and to compare relative values
among peer companies without regard to income taxes. We also
understand that securities analysts and rating agencies use this
measure in similar ways. While PV-10 is based on prices, costs and
discount factors which are consistent from company to company, the
standardized measure is dependent on the unique tax situation of
each individual company.
The company’s PV-10 and standardized measure were calculated
using the following prices, before field differentials: $3.67 per
mcf of natural gas and $96.82 per bbl of oil as of December 31,
2013 and $2.76 per mcf of natural gas and $94.84 per bbl of oil as
of December 31, 2012, before field differential adjustments.
CHESAPEAKE ENERGY CORPORATION
SUPPLEMENTAL DATA - NATURAL GAS, OIL
AND NGL PRODUCTION, SALES AND INTEREST EXPENSE
(unaudited)
Three Months EndedDecember 31, Twelve Months
EndedDecember 31, 2013 2012 2013
2012 Net Production: Natural gas (bcf) 270.5 280.2
1,094.6 1,128.8 Oil (mmbbl) 10.2 8.9 41.1 31.3 NGL (mmbbl) 5.9 4.6
20.9 17.6 Oil equivalent (mmboe) 61.2 60.3 244.4 237.0
Natural Gas, Oil and NGL Sales ($ in millions): Natural gas
sales $ 498 $ 645 $ 2,430 $ 2,004 Natural gas derivatives –
realized gains (losses)(a) 17 (63 ) 9 328 Natural gas derivatives –
unrealized gains (losses) (127 ) 70 (52 ) (331 ) Total
Natural Gas Sales 388 652 2,387 2,001
Oil sales 937 790 3,911 2,829 Oil derivatives – realized
gains (losses)(a) (19 ) 34 (108 ) 39 Oil derivatives – unrealized
gains (losses) 116 54 280 857 Total Oil
Sales 1,034 878 4,083 3,725 NGL
sales 186 126 582 526 NGL derivatives – realized gains (losses)(a)
— — — (9 ) NGL derivatives – unrealized gains (losses) — 1
— 35 Total NGL Sales 186 127 582
552 Total Natural Gas, Oil and NGL Sales $ 1,608
$ 1,657 $ 7,052 $ 6,278
Average Sales Price – excluding gains
(losses) on derivatives:
Natural gas ($ per mcf) $ 1.84 $ 2.30 $ 2.22 $ 1.77 Oil ($ per bbl)
$ 91.46 $ 88.44 $ 95.17 $ 90.49 NGL ($ per bbl) $ 31.76 $ 27.20 $
27.87 $ 29.89 Oil equivalent ($ per boe) $ 26.49 $ 25.90 $ 28.33 $
22.61
Average Sales Price – excluding
unrealized gains (losses) on derivatives(a):
Natural gas ($ per mcf) $ 1.90 $ 2.07 $ 2.23 $ 2.07 Oil ($ per bbl)
$ 89.58 $ 92.23 $ 92.53 $ 91.74 NGL ($ per bbl) $ 31.76 $ 27.12 $
27.87 $ 29.37 Oil equivalent ($ per boe) $ 26.44 $ 25.41 $ 27.92 $
24.12
Interest Expense (Income) ($ in millions):
Interest(b) $ 56 $ 17 $ 169 $ 84 Derivatives – realized (gains)
losses (3 ) — (9 ) (1 ) Derivatives – unrealized (gains) losses 10
(3 ) 67 (6 ) Total Interest Expense $ 63 $ 14
$ 227 $ 77
(a) Includes settlements for commodity
derivatives adjusted for option premiums. For derivatives closed
early, settlements are reflected in the period of original contract
expiration.
(b) Net of amounts capitalized.
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED CASH FLOW
DATA
($ in millions)
(unaudited)
THREE MONTHS
ENDED: December 31,2013 December
31,2012 Beginning cash $ 987 $ 142
Cash provided by operating activities 1,028
860
Cash flows from investing
activities:
Drilling and completion costs on proved
and unproved properties(a)
(1,117 ) (1,377 ) Acquisition of proved and unproved properties(b)
(211 ) (295 ) Sale of proved and unproved properties 668 3,386
Geological and geophysical costs (17 ) (28 ) Additions to other
property and equipment(c) (333 ) (735 ) Proceeds from sales of
other assets 126 2,273 Investments, net (36 ) (134 ) Other —
80
Total cash provided by (used in) investing
activities (920 ) 3,170
Cash used in financing
activities (258 ) (3,899 )
Change in cash and cash equivalents
classified as current assets held for sale
— 14
Change in cash and cash equivalents (150
) 145
Ending cash $ 837 $ 287
(a) Includes capitalized interest of $15
million for the three months ended December 31, 2013.
(b) Includes capitalized interest of $159
million and $153 million for the three months ended December 31,
2013 and 2012, respectively.
(c) Includes approximately $235 million
for the purchase of rigs and compressors out of sale leaseback
transactions in the 2013 fourth quarter.
TWELVE MONTHS ENDED:
December 31,2013 December
31,2012 Beginning cash $ 287 $ 351
Cash provided by operating activities 4,614
2,837
Cash flows from investing
activities:
Drilling and completion costs on proved
and unproved properties(d)
(5,552 ) (8,707 ) Acquisition of proved and unproved properties(e)
(974 ) (2,385 ) Sale of proved and unproved properties 3,409 5,612
Geological and geophysical costs (52 ) (193 ) Additions to other
property and equipment(f) (972 ) (2,651 ) Proceeds from sales of
other assets 922 2,492 Investments, net 71 1,605 Other 181
(757 )
Total cash used in investing activities (2,967 )
(4,984 )
Cash provided by (used in) financing
activities (1,097 ) 2,083
Change in cash and cash
equivalents 550 (64 )
Ending cash $ 837 $
287
(d) Includes capitalized interest of $62
million and $30 million for the 12 months ended December 31,
2013 and 2012, respectively.
(e) Includes capitalized interest of $730
million and $776 million for the 12 months ended December 31,
2013 and 2012, respectively.
(f) Includes approximately $240 million
for the purchase of rigs and compressors out of sale leaseback
transactions in 2013.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF ADJUSTED NET INCOME
AVAILABLE TO COMMON STOCKHOLDERS
($ in millions, except per share
data)
(unaudited)
THREE MONTHS
ENDED: December 31, 2013 September 30,
2013 December 31, 2012
Net income (loss) available to common
stockholders
$ (159 ) $ 156 $ 250
Adjustments, net of tax:
Unrealized (gains) losses on derivatives 13 118 (78 ) Restructuring
and other termination costs 28 39 2 Impairments of fixed assets and
other 126 55 36 Net gains on sales of fixed assets (7 ) (82 ) (166
) Losses on investment 84 — — Gains on sales of investments — (2 )
(19 ) Losses on purchases of debt and extinguishment of other
financing 76 — 122 Other — (2 ) (1 )
Adjusted net income available to common
stockholders(a)
161 282 146 Preferred stock dividends 43 43 43 Earnings allocated
to participating securities — 3 7
Total
adjusted net income attributable to Chesapeake $ 204 $
328 $ 196
Weighted average fully diluted shares
outstanding (in millions)(b)
767 765 754
Adjusted earnings per share assuming
dilution(a) $ 0.27 $ 0.43 $ 0.26
(a) Adjusted net income available to
common stockholders and adjusted earnings per share assuming
dilution exclude certain items that management believes affect the
comparability of operating results. The company believes these
adjusted financial measures are a useful adjunct to earnings
calculated in accordance with accounting principles generally
accepted in the United States (GAAP) because:
(i) Management uses adjusted net income
available to common stockholders to evaluate the company's
operational trends and performance relative to other natural gas
and oil producing companies.
(ii) Adjusted net income available to
common stockholders is more comparable to earnings estimates
provided by securities analysts.
(iii) Items excluded generally are
one-time items or items whose timing or amount cannot be reasonably
estimated. Accordingly, any guidance provided by the company
generally excludes information regarding these types of items.
(b) Weighted average fully diluted shares
outstanding include shares that were considered antidilutive for
calculating earnings per share in accordance with GAAP.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF ADJUSTED NET INCOME
AVAILABLE TO COMMON STOCKHOLDERS
($ in millions, except per share
data)
(unaudited)
TWELVE MONTHS ENDED:
December 31, 2013 December 31, 2012
Net income (loss) available to common stockholders $
474 $ (940 )
Adjustments, net of tax: Unrealized
gains on derivatives (100 ) (347 ) Restructuring and other
termination costs 154 4 Impairment of natural gas and oil
properties — 2,022 Impairments of fixed assets and other 341 208
Net gains on sales of fixed assets (187 ) (163 ) (Gains) losses on
investments 95 (622 ) Losses on purchases of debt and
extinguishment of other financing 120 122 Other (1 ) 1
Adjusted net income available to common
stockholders(a) 896 285 Preferred stock dividends 171
171 Premium on purchase of preferred shares of a subsidiary 69 —
Earnings allocated to participating securities 10 —
Total adjusted net income attributable to Chesapeake $ 1,146
$ 456
Weighted average fully diluted shares
outstanding (in millions)(b) 765 755
Adjusted
earnings per share assuming dilution(a) $ 1.50 $ 0.61
(a) Adjusted net income available to
common stockholders and adjusted earnings per share assuming
dilution exclude certain items that management believes affect the
comparability of operating results. The company believes these
adjusted financial measures are a useful adjunct to GAAP earnings
because:
(i) Management uses adjusted net income
available to common stockholders to evaluate the company's
operational trends and performance relative to other natural gas
and oil producing companies.
(ii) Adjusted net income available to
common stockholders is more comparable to earnings estimates
provided by securities analysts.
(iii) Items excluded generally are
one-time items or items whose timing or amount cannot be reasonably
estimated. Accordingly, any guidance provided by the company
generally excludes information regarding these types of items.
(b) Weighted average fully diluted shares
outstanding include shares that were considered antidilutive for
calculating earnings per share in accordance with GAAP.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF OPERATING CASH FLOW
AND EBITDA
($ in millions)
(unaudited)
THREE MONTHS
ENDED: December 31, 2013 September 30,
2013 December 31, 2012 CASH PROVIDED BY
OPERATING ACTIVITIES $ 1,028 $ 1,361 $ 860 Changes in assets
and liabilities (33 ) 52 278
OPERATING CASH
FLOW(a) $ 995 $ 1,413 $ 1,138
THREE
MONTHS ENDED: December 31, 2013
September 30, 2013 December 31, 2012
NET INCOME (LOSS) $ (74 ) $ 240 $ 344 Interest expense 63 40
14 Income tax expense (benefit) (45 ) 147 219 Depreciation and
amortization of other assets 80 79 71 Natural gas, oil and NGL
depreciation, depletion and amortization 644 652 651
EBITDA(b) $ 668 $ 1,158 $ 1,299
THREE MONTHS ENDED: December 31, 2013
September 30, 2013 December 31, 2012
CASH PROVIDED BY OPERATING ACTIVITIES $ 1,028 $ 1,361 $ 860
Changes in assets and liabilities (33 ) 52 278 Interest expense,
net of unrealized gains (losses) on derivatives 53 40 17 Natural
gas, oil and NGL derivative gains (losses), net (13 ) (253 ) 96
Cash payments on natural gas, oil and NGL
derivative settlements, net
30 19 17 Share-based compensation (20 ) (22 ) (27 ) Restructuring
and other termination costs (11 ) (60 ) (2 ) Impairments of fixed
assets and other (166 ) (59 ) (59 ) Net gains on sales of fixed
assets 12 132 272 Losses on investments (189 ) (23 ) (17 ) Gains on
sales of investments — 3 31 Losses on purchases of debt and
extinguishment of other financing (3 ) — (200 ) Other items (20 )
(32 ) 33
EBITDA(b) $ 668 $ 1,158
$ 1,299
(a) Operating cash flow represents net
cash provided by operating activities before changes in assets and
liabilities. Operating cash flow is presented because management
believes it is a useful adjunct to net cash provided by operating
activities under GAAP. Operating cash flow is widely accepted as a
financial indicator of a natural gas and oil company's ability to
generate cash which is used to internally fund exploration and
development activities and to service debt. This measure is widely
used by investors and rating agencies in the valuation, comparison,
rating and investment recommendations of companies within the
natural gas and oil exploration and production industry. Operating
cash flow is not a measure of financial performance under GAAP and
should not be considered as an alternative to cash flows from
operating, investing or financing activities as an indicator of
cash flows, or as a measure of liquidity.
(b) Ebitda represents net income (loss)
before interest expense, income taxes, and depreciation, depletion
and amortization expense. Ebitda is presented as a supplemental
financial measurement in the evaluation of our business. We believe
that it provides additional information regarding our ability to
meet our future debt service, capital expenditures and working
capital requirements. This measure is widely used by investors and
rating agencies in the valuation, comparison, rating and investment
recommendations of companies. Ebitda is also a financial
measurement that, with certain negotiated adjustments, is reported
to our lenders pursuant to our bank credit agreements and is used
in the financial covenants in our bank credit agreements. Ebitda is
not a measure of financial performance under GAAP. Accordingly, it
should not be considered as a substitute for net income, income
from operations or cash flow provided by operating activities
prepared in accordance with GAAP.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF OPERATING CASH FLOW
AND EBITDA
($ in millions)
(unaudited)
TWELVE MONTHS ENDED:
December 31, 2013 December 31, 2012
CASH PROVIDED BY OPERATING ACTIVITIES $ 4,614 $ 2,837
Changes in assets and liabilities 342 1,083
OPERATING CASH FLOW(a) $ 4,956 $ 3,920
TWELVE MONTHS
ENDED: December 31, 2013 December 31,
2012 NET INCOME (LOSS) $ 894 $ (594 ) Interest
expense, net of unrealized gains 227 77 Income tax expense
(benefit) 548 (380 ) Depreciation and amortization of other assets
314 304 Natural gas, oil and NGL depreciation, depletion and
amortization 2,589 2,507
EBITDA(b) $
4,572 $ 1,914
TWELVE MONTHS ENDED: December 31, 2013
December 31, 2012 CASH PROVIDED BY OPERATING
ACTIVITIES $ 4,614 $ 2,837 Changes in assets and liabilities
342 1,083 Interest expense, net of unrealized gains on derivatives
159 83 Natural gas, oil and NGL derivative gains, net 129 919 Cash
(receipts) payments on natural gas, oil and NGL derivative
settlements, net 91 (234 ) Share-based compensation (98 ) (120 )
Restructuring and other termination costs (175 ) (2 ) Impairment of
natural gas and oil properties — (3,315 ) Impairments of fixed
assets and other (483 ) (316 ) Net gains on sales of fixed assets
302 267 Losses on investments (229 ) (164 ) Gains (losses) on sales
of investments (7 ) 1,092 Losses on purchases of debt and
extinguishment of other financing (40 ) (200 ) Other items (33 )
(16 )
EBITDA(b) $ 4,572 $ 1,914
(a) Operating cash flow represents net
cash provided by operating activities before changes in assets and
liabilities. Operating cash flow is presented because management
believes it is a useful adjunct to net cash provided by operating
activities under GAAP. Operating cash flow is widely accepted as a
financial indicator of a natural gas and oil company's ability to
generate cash which is used to internally fund exploration and
development activities and to service debt. This measure is widely
used by investors and rating agencies in the valuation, comparison,
rating and investment recommendations of companies within the
natural gas and oil exploration and production industry. Operating
cash flow is not a measure of financial performance under GAAP and
should not be considered as an alternative to cash flows from
operating, investing or financing activities as an indicator of
cash flows, or as a measure of liquidity.
(b) Ebitda represents net income (loss)
before interest expense, income taxes, and depreciation, depletion
and amortization expense. Ebitda is presented as a supplemental
financial measurement in the evaluation of our business. We believe
that it provides additional information regarding our ability to
meet our future debt service, capital expenditures and working
capital requirements. This measure is widely used by investors and
rating agencies in the valuation, comparison, rating and investment
recommendations of companies. Ebitda is also a financial
measurement that, with certain negotiated adjustments, is reported
to our lenders pursuant to our bank credit agreements and is used
in the financial covenants in our bank credit agreements. Ebitda is
not a measure of financial performance under GAAP. Accordingly, it
should not be considered as a substitute for net income, income
from operations or cash flow provided by operating activities
prepared in accordance with GAAP.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF ADJUSTED
EBITDA
($ in millions)
(unaudited)
THREE MONTHS
ENDED: December 31, 2013 September 30,
2013 December 31, 2012 EBITDA $ 668
$ 1,158 $ 1,299
Adjustments: Unrealized (gains)
losses on natural gas, oil and NGL derivatives 10 191 (125 )
Restructuring and other termination costs 45 63 3 Impairments of
fixed assets and other 203 89 59 Net gains on sales of fixed assets
(12 ) (132 ) (272 ) Losses on investment 136 — — Gains on sales of
investments — (3 ) (31 ) Losses on purchases of debt and
extinguishment of other financing 123 — 200
Net income attributable to noncontrolling
interests
(42 ) (38 ) (44 ) Other 1 (3 ) (1 )
Adjusted
EBITDA(a) $ 1,132 $ 1,325 $ 1,088
TWELVE MONTHS
ENDED: December 31, 2013 December 31, 2012
EBITDA $ 4,572 $ 1,914
Adjustments:
Unrealized (gains) losses on natural gas, oil and NGL derivatives
(228 ) (561 ) Restructuring and other termination costs 248 7
Impairment of natural gas and oil properties — 3,315 Impairments of
fixed assets and other 550 340 Net gains on sales of fixed assets
(302 ) (267 ) Losses on investments 146 — (Gains) losses on sales
of investments 7 (1,019 ) Losses on purchases of debt and
extinguishment of other financing 193 200 Net income attributable
to noncontrolling interests (170 ) (175 )
Adjusted
EBITDA(a) $ 5,016 $ 3,754
(a) Adjusted ebitda excludes certain items
that management believes affect the comparability of operating
results. The company believes these non-GAAP financial measures are
a useful adjunct to ebitda because:
(i) Management uses adjusted ebitda to
evaluate the company's operational trends and performance relative
to other natural gas and oil producing companies.
(ii) Adjusted ebitda is more comparable to
estimates provided by securities analysts.
(iii) Items excluded generally are
one-time items or items whose timing or amount cannot be reasonably
estimated. Accordingly, any guidance provided by the company
generally excludes information regarding these types of items.
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 Ending
12/31/2014
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 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
Share-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 – 75
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 11/6/2013.
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 January and
February, 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
share-based compensation and restructuring and other termination
costs.
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 $90.00 per bbl and $4.00 per mcf 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.
As of January 31, 2014, the company had downside protection on
approximately 68% of its projected 2014 natural gas production at
an average price of $4.15 per mcf. Approximately 58% of the
company's projected 2014 oil production had downside protection at
an average price of $93.92 per bbl.
The company’s natural gas hedging positions as of January 31,
2014 were as follows:
Open Natural Gas Swaps; Gains (Losses)
from Closed
Natural Gas Trades and Call Option
Premiums
Open
Swaps
(bcf)
Avg. NYMEX
Price of
Open Swaps
Total Gains(Losses)fromClosed Trades
andPremiums for CallOptions ($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. NYMEXplus/(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) fromClosed Trades
andPremiums for CallOptions ($ inmillions)
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 Q4 2014
90 $ 6.00 Q4 2014 91 6.00 Q4 2014 92 6.00 Q4 2014 92
6.00 Total 2014 365 $ 6.00
Chesapeake Energy CorporationInvestor Contact:Gary
T. Clark, CFA, 405-935-8870ir@chk.comorMedia Contact:Gordon
Pennoyer, 405-935-8878media@chk.com
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