OKLAHOMA CITY, July 26, 2018 /PRNewswire/ -- Chesapeake
Energy Corporation (NYSE:CHK) today announced that it has entered
into an agreement to sell its interests in the Utica Shale
operating area located in Ohio for
approximately $2.0 billion to Encino
Acquisition Partners, a private oil and gas company headquartered
in Houston, Texas. The
transaction, which is subject to certain customary closing
conditions, including the receipt of third-party consents, is
expected to close in the fourth quarter of 2018. The purchase price
includes a $100 million contingent
payment based on future natural gas prices and is subject to
adjustment for certain customary items at or following closing.
Chesapeake intends to use the
anticipated net proceeds to reduce debt.
Transaction highlights:
- $1.9 billion initial closing proceeds to be applied
toward reduction of debt; up to $150
million reduction in annual cash interest expense
- $450 million reduction of
projected 2019 gathering, processing and transportation expense,
for an expected improvement of approximately $0.50 per barrel of oil equivalent (boe);
eliminates all future Utica Shale midstream and downstream
commitments of approximately $2.4
billion
- Improves EBITDA by approximately $0.70 per boe in 2019, due to lower cash
operating costs and improved oil differentials, assuming flat 2018
commodity prices
- Expect organic replacement of divested EBITDA within one
year, primarily driven by oil volume growth from the Powder River
Basin (PRB)
- 2019 oil production expected to grow approximately 10% from
2018, adjusted for asset sales, with additional oil growth
anticipated for 2020
- 2018 Outlook updated to reflect business performance year to
date and impact of pending transaction
Doug Lawler, Chesapeake's President and Chief Executive
Officer, commented, "Today's announcement makes Chesapeake a stronger and more competitive
company. By divesting our position in the Utica and using the proceeds for debt
reduction, we will not only significantly improve the health of our
balance sheet, but we will also accelerate progress toward our
strategic goals of reducing our debt, improving our margins and
reaching sustainable free cash flow neutrality.
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INVESTOR
CONTACT:
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MEDIA
CONTACT:
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CHESAPEAKE ENERGY
CORPORATION
|
Brad Sylvester,
CFA
(405)
935-8870
ir@chk.com
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Gordon
Pennoyer
(405)
935-8878
media@chk.com
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6100 North Western
Avenue
P.O. Box
18496
Oklahoma City, OK
73154
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"Moving forward, we will continue to target our long-term goal
of improving our leverage ratio to two times net debt to EBITDA. We
remain committed to generating higher returns on invested capital
by directing our investments to the highest-return opportunities
across our five diverse, multi-zone basins. With the addition of a
fifth rig earlier this month, we believe our position in the PRB
will lead our organic oil volume growth, driving further leverage
reduction, enhancing our margins and improving our free cash flow.
As a result, we anticipate growing overall oil production
approximately 10% year over year in 2019, adjusted for asset sales,
with additional growth forecasted for 2020. The underlying strength
of our portfolio, along with the overall price advantages we
currently realize from our remaining oil assets, position
Chesapeake to replace the divested
EBITDA within a year following the close of the transaction.
"We are pleased with our updated 2018 Outlook reflecting our
strong performance year to date, as well as adjustments assuming a
2018 fourth quarter close of the Utica sale. While we are reducing our
full-year natural gas and NGL volumes accordingly, we are raising
our oil guidance by 500,000 barrels. We have also reflected the
realized pricing and cost structure adjustments, resulting in a
forecasted EBITDA level that is unchanged from our previous
guidance that included the Utica
for the full year. We are raising our capital expenditures slightly
to reflect an accelerated capital program in the Utica on behalf of the buyer pre-closing, the
cost of which will be settled in the post-closing adjustments, and
increased drilling and completions activity in the PRB. Finally, we
expect to seek a renewal and extension of our revolving credit
facility in the 2018 third quarter. Pro
forma collateral available for the new borrowing
base, excluding the Utica assets, is expected to
exceed $7 billion.
"Our unwavering commitment to reducing our debt, maintaining
capital discipline, removing legacy complexities and simplifying
our business has made Chesapeake
more competitive. Over the past five years, we have fundamentally
transformed all aspects of our company, eliminating more than
$12 billion in total leverage,
reducing our total midstream and downstream commitments by more
than $10 billion, erasing more than
$1 billion in annual cash costs, and
removing operating leases, subsidiary preferred equity, four
minimum volume commitments and nine volumetric production payments.
We expect this transaction to improve our margins, result in
greater capital efficiency and significantly reduce our outstanding
debt. The depth of our assets, strength of our people and
improvements highlighted here position Chesapeake to deliver increasing returns
directly to our equity holders."
As part of the transaction, Chesapeake has agreed to sell all of its
acreage in Ohio, of which
approximately 320,000 net acres are in the commercial window for
Utica Shale development, 920 operated and non-operated wells which
produced an average of approximately 107,000 boe per day (67%
natural gas, 24% natural gas liquids and 9% oil) in 2017, on a net
basis, and related property and equipment. Proved oil and natural
gas reserves in the Utica Shale as of December 31, 2017 were approximately 480 million
boe (72% natural gas, 23% natural gas liquids and 5%
oil).
Powder River Basin
Update
The Powder River Basin in Wyoming continues to develop into the oil
growth engine of the company, as recently demonstrated by a 78
percent increase in net production compared to the average 2017
fourth quarter rate. On July 22,
2018, total net production hit a new record of approximately
32,000 net boe per day (42% oil, 41% natural gas and 17% natural
gas liquids), compared to an average 2017 fourth quarter rate of
18,000 boe per day. Chesapeake now
projects net production from the area will reach approximately
38,000 boe per day by year-end 2018, and expects total net annual
production from the PRB to more than double in 2019 compared to
2018.
As a result of this planned transaction, Chesapeake has updated its guidance on certain
factors that affect its financial performance for the remainder of
2018 below. Additional details about this transaction and the
company's strategy going forward will be provided on the company's
2018 second quarter earnings conference call that has been
scheduled on Wednesday, August 1,
2018 at 9:00 am EDT. The
telephone number to access the conference call is 323-994-2093 or
toll-free 888-254-3590. The passcode for the call is 9446629. The
number to access the conference call replay is 719-457-0820 or
toll-free 888-203-1112 and the passcode for the replay is 9446629.
The conference call will be webcast and can be found at
www.chk.com in the "Investors" section of the company's
website. The webcast of the conference will be available on the
website for one year.
CHESAPEAKE
ENERGY CORPORATION
MANAGEMENT'S OUTLOOK AS OF
JULY 25, 2018
Chesapeake periodically
provides guidance on certain factors that affect the company's
future financial performance. New information or changes from the
company's May 1, 2018 outlook are
italicized bold below.
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Year
Ending 12/31/2018
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Production Growth
adjusted for asset sales(a)
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1% to 5%
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Absolute
Production
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Liquids -
mmbbls
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48.5 -
52.5
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Oil -
mmbbls
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31.5 -
33.5
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NGL -
mmbbls
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17.0 -
19.0
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Natural gas -
bcf
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790 -
830
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Total absolute
production - mmboe
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180 -
191
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Absolute daily
rate - mboe
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494 -
524
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Estimated
Realized Hedging Effects(b) (based on 7/24/18 strip
prices):
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Oil -
$/bbl
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($11.00)
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Natural gas -
$/mcf
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$0.14
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NGL -
$/bbl
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$(0.76)
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Estimated Basis to
NYMEX Prices:
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Oil -
$/bbl
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$1.50 -
$1.70
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Natural gas -
$/mcf
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($0.10) -
($0.20)
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NGL -
$/bbl
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($5.20) -
($5.60)
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Operating Costs per
Boe of Projected Production:
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Production
expense
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$2.85 -
$2.95
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Gathering,
processing and transportation expenses
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$6.85 -
$7.35
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Oil -
$/bbl
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$3.60 -
$3.80
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Natural Gas -
$/mcf
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$1.25 -
$1.35
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NGL -
$/bbl
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$7.85 -
$8.25
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Production
taxes
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$0.60 -
$0.70
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General and
administrative(c)
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$1.25 -
$1.35
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Stock-based
compensation (noncash)
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$0.10 -
$0.20
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DD&A of
natural gas and liquids assets
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$5.25 -
$6.25
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Depreciation of other
assets
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$0.35 -
$0.45
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Interest
expense(d)
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$2.40 -
$2.60
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Marketing net
margin(e)
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($60) -
($40)
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Book Tax
Rate
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0%
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Adjusted EBITDA,
based on 7/24/18 strip prices ($ in
millions)(f)
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$2,250 -
$2,450
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Capital
Expenditures ($ in millions)(g)
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$2,000 -
$2,300
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Capitalized Interest
($ in millions)(d)
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$175
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Total Capital
Expenditures ($ in millions)
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$2,175 -
$2,475
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(a)
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Based on 2017
production of 407 mboe per day, adjusted for 2017 asset sales and
2018 asset sales signed to date.
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(b)
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Includes expected
settlements for oil, natural gas and NGL derivatives adjusted for
option premiums. For derivatives closed early, settlements are
reflected in the period of original contract expiration.
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(c)
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Excludes expenses
associated with stock-based compensation, which are recorded in
general and administrative expenses in Chesapeake's Consolidated
Statement of Operations.
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(d)
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Excludes changes due
to pending closing of Utica Shale transaction and planned
subsequent liability management.
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(e)
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Excludes non-cash
amortization of approximately $19 million.
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(f)
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Adjusted EBITDA is a
non-GAAP measure used by management to evaluate the company's
operational trends and performance relative to other oil and
natural gas producing companies. Adjusted EBITDA excludes certain
items that management believes affect the comparability of
operating results. The most directly comparable GAAP measure is net
income but, it is not possible, without unreasonable efforts, to
identify the amount or significance of events or transactions that
may be included in future GAAP net income but that management does
not believe to be representative of underlying business
performance. The company further believes that providing estimates
of the amounts that would be required to reconcile forecasted
adjusted EBITDA to forecasted GAAP net income would imply a degree
of precision that may be confusing or misleading to investors.
Items excluded from net income to arrive at adjusted EBITDA include
interest expense, income taxes, and depreciation, depletion and
amortization expense as well as one-time items or items whose
timing or amount cannot be reasonably estimated.
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(g)
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Includes capital
expenditures for drilling and completion, leasehold, geological and
geophysical costs, rig termination payments and other property,
plant and equipment. Excludes any additional proved property
acquisitions.
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Headquartered in Oklahoma
City, Chesapeake Energy Corporation's (NYSE: CHK) operations
are focused on discovering and developing its large and
geographically diverse resource base of unconventional oil and
natural gas assets onshore in the United
States.
This news release includes "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.
They include statements that give our current expectations,
including statements regarding the benefits and cost
rationalization of the proposed transaction, guidance, replacing
EBITDA growth, the anticipated purchase price and use of proceeds
from the proposed transaction, the expected timetable for
completing the proposed transaction, our future financial
performance, management's outlook guidance or forecasts of future
events, production and well connection forecasts, estimates of
operating costs, anticipated capital and operational efficiencies,
planned development drilling and expected drilling cost reductions,
anticipated timing of wells to be placed into production, general
and administrative expenses, capital expenditures, projected cash
flow and liquidity, our ability to enhance our cash
flow and financial flexibility, plans and objectives for future
operations, the ability of our employees, portfolio strength and
operational leadership to create long-term value, and the
assumptions on which such 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 the need to obtain consents and
approvals and to satisfy closing conditions, the termination of the
agreement, the effect of the transaction on our financial position
actions by the purchaser, effects of operations and changes in PRB,
purchase price adjustments, interest rate fluctuation and 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; the
limitations our level of indebtedness may have on our financial
flexibility; our inability to access the capital markets on
favorable terms; the availability of cash flows from operations and
other funds to finance reserve replacement costs or satisfy our
debt obligations; downgrade in our credit rating requiring us to
post more collateral under certain commercial arrangements;
write-downs of our oil and natural gas asset carrying values due to
low commodity prices; 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 generate profits or achieve 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; charges incurred
in response to market conditions and in connection with our ongoing
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; impacts of
potential legislative and regulatory actions addressing climate
change; federal and state tax proposals affecting our industry;
potential OTC derivatives regulation limiting our ability to hedge
against commodity price fluctuations; competition in the oil and
gas exploration and production industry; a deterioration in general
economic, business or industry conditions; negative public
perceptions of our industry; limited control over properties we do
not operate; pipeline and gathering system capacity constraints and
transportation interruptions; terrorist activities and
cyber-attacks adversely impacting our operations; an interruption
in operations at our headquarters due to a catastrophic event;
certain anti-takeover provisions that affect shareholder rights;
and our inability to increase or maintain our liquidity through
debt repurchases, capital exchanges, asset sales, joint ventures,
farmouts or other means.
These market prices are subject to significant volatility.
Our production forecasts are 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, except as required by applicable law. In
addition, this news release contains time-sensitive information
that reflects management's best judgment only as of the date of
this news release.
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SOURCE Chesapeake Energy Corporation