Chesapeake Energy Corporation Updates Its 2015 Operating Plan in Response to Low Commodity Price Environment
March 23 2015 - 4:30PM
Business Wire
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.
Chesapeake Energy CorporationInvestor Contact:Brad
Sylvester, CFA, 405-935-8870ir@chk.comorMedia Contact:Gordon
Pennoyer, 405-935-8878media@chk.com
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