OKLAHOMA CITY, May 2, 2018 /PRNewswire/ — Chesapeake Energy Corporation (NYSE:CHK) today reported financial and operational results for the 2018 first quarter. Highlights include:
- 2018 first quarter net income available to common stockholders of $268 million, or $0.29 per diluted share; 2018 first quarter adjusted net income available to common stockholders of $361 million, or $0.34 per diluted share
- 2018 first quarter net cash provided by operating activities increased $557 millioncompared to 2017 first quarter
- Reduced $581 million principal amount of long-term debt in 2018 first quarter
- Average 2018 first quarter production of approximately 554,000 barrels of oil equivalent (boe) per day, up 11 percent compared to 2017 first quarter, adjusted for asset sales
- Average 2018 first quarter oil production of approximately 92,000 barrels of oil per day, up 16 percent compared to 2017 first quarter, adjusted for asset sales
Doug Lawler, Chesapeake’s Chief Executive Officer, commented, “The strength of our operations and improved cost structure, coupled with higher realized prices, resulted in our best quarterly financial performance in over three years. For the second consecutive quarter, we recorded significant growth in our earnings and cash flow. Notably, our margin improvement, while aided by increases in commodity indices, was primarily driven by strong oil production and a lower cost structure, highlighting the differential profit generated beyond price impacts, and the sustainability of our improving financial performance. The net cash flow provided by operating and investing activities, including net proceeds from asset sales, was $609 million for the quarter and was the highest in more than three years, allowing us to reduce our long-term debt by $581 million. Our results provide further evidence that we are achieving our long term goals of growing cash flow, expanding margins, reducing long term debt and generating higher returns to shareholders.”
2018 First Quarter Results
For the 2018 first quarter, Chesapeake reported net income of $294 million and net income available to common stockholders of $268 million, or $0.29 per diluted share. The company’s EBITDA for the 2018 first quarter was $703 million. Adjusting for items that are typically excluded by securities analysts, the 2018 first quarter adjusted net income attributable to Chesapeake was $361 million, or $0.34 per diluted share, while the company’s adjusted EBITDA was $733 million. Reconciliations of financial measures calculated in accordance with GAAP to non-GAAP measures are provided on pages 11 – 13 of this release.
Production expenses during the 2018 first quarter were $2.94 per boe, while general and administrative expenses (including stock-based compensation) during the 2018 first quarter were $1.44per boe. The increase in production expenses was primarily the result of increased saltwater disposal costs and workover activity. With regard to general and administrative expenses, lower compensation costs were more than offset by lower overhead allocations, primarily as a result of certain 2017 divestitures. Chesapeake’s combined production and general and administrative expenses per boe increased by 5 percent year over year. However, the company’s gathering, processing, and transportation expenses decreased by 4 percent year over year to $7.15 per boe during the 2018 first quarter, resulting in lower overall expenses per unit of production on a combined basis.
Capital Spending Overview
Chesapeake’s total capital expenditures (including accruals) were approximately $611 million during the 2018 first quarter, including capitalized interest of $43 million, compared to approximately $576 million in the 2017 first quarter. A summary is provided in the table below.
Balance Sheet and Liquidity
As of March 31, 2018, Chesapeake’s principal debt balance was approximately $9.400 billion, compared to $9.981 billion as of December 31, 2017. Also, as of March 31, 2018, the company had $200 million of outstanding borrowings and had used $157 million for various letters of credit under the senior secured revolving credit facility resulting in approximately $3.4 billion of available liquidity under the facility.
During the 2018 first quarter, the company closed certain property sales for net proceeds of approximately $387 million. In addition, in February 2018 Chesapeake sold approximately 4.3 million shares of FTS International (NYSE: FTSI) for approximately $74 million in net proceeds and continues to hold approximately 22.0 million shares in the publicly traded company. FTSI is a provider of hydraulic fracturing services in North America. Chesapeake used the $461 million in aggregate proceeds described above to reduce its outstanding borrowings under its revolving credit facility. Subsequent to the 2018 first quarter, in April the company closed an additional asset sale for properties in the Mid-Continent for approximately $60 million in net proceeds which reduced Chesapeake’s outstanding borrowings under its revolving credit facility.
Chesapeake’s average daily production for the 2018 first quarter was approximately 554,000 boe compared to approximately 528,000 boe in the 2017 first quarter. The following tables show average daily production and average daily sales prices received by the company’s operating divisions for the 2018 and 2017 first quarters, respectively.
In the Powder River Basin (PRB) in Wyoming, Chesapeake is currently utilizing four rigs, all of which are drilling in the Turner formation. Chesapeake placed six wells on production during the 2018 first quarter in the PRB and expects to place 12 wells on production during the 2018 second quarter and up to 35 wells for the full-year 2018.
As part of a reduced Turner spacing test, six of the company’s 12 second quarter wells were placed on production in April 2018 and spaced at approximately 1,980 to 2,300 feet apart. While currently on conservative choke settings between 20 and 22/64ths, the six wells have ranged from 6 to 19 days on production with current flowing tubing pressures ranging from 2,750 to 3,050 pounds. The company is encouraged by initial results from these tighter-spaced wells, as the bounded middle well spaced at approximately 1,980 feet has already reached a production rate of approximately ~2,000 boe per day (46% oil) after 18 days on production. The company expects significantly higher rates as these wells clean up over the next 30 days.
In the company’s Mid-Continent operating area in Oklahoma, Chesapeake is currently utilizing two drilling rigs and placed eight wells on production during the 2018 first quarter and expects to place nine wells on production during the 2018 second quarter and up to 35 wells for the full-year 2018. Chesapeake has drilled its first horizontal well targeting the Chester formation in Woods County in April 2018 and expects to place this well on production later this quarter. While one rig will continue to drill appraisal opportunities on the company’s approximately 800,000 net acre position during 2018, the second rig will continue developing the Oswego oil play.
In the Eagle Ford Shale, Chesapeake is currently utilizing five drilling rigs and placed 23 wells on production during the 2018 first quarter and expects to place approximately 50 wells on production during the 2018 second quarter and up to 150 wells for the full-year 2018.
In the Utica Shale in Ohio, Chesapeake is currently utilizing two drilling rigs and placed ten wells on production during the 2018 first quarter. The company has recently changed its completion methodologies resulting in 30-day average daily production rates that have increased by approximately 65 percent for its first six wells in 2018 under this new program. Chesapeake expects to place seven wells on production during the 2018 second quarter and up to 35 wells for the full-year 2018.
In the Marcellus Shale, Chesapeake is currently utilizing one drilling rig and placed six wells on production during the 2018 first quarter and expects to place 17 wells on production during the 2018 second quarter and up to 50 wells for the full-year 2018.
In the Haynesville Shale in Louisiana, Chesapeake is currently utilizing three drilling rigs and placed four wells on production during the 2018 first quarter and expects to place eight wells on production during the 2018 second quarter and up to 25 wells for the full-year 2018.
Key Financial and Operational Results
The table below summarizes Chesapeake’s key financial and operational results during the 2018 first quarter as compared to results in prior periods.
2018 First Quarter Financial and Operational Results Conference Call Information
A conference call to discuss this release has been scheduled on Wednesday, May 2, 2018 at 9:00 am EDT. The telephone number to access the conference call is 323-794-2093 or toll-free 866-548-4713. The passcode for the call is 2838919. 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 2838919. 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.
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 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. They include statements that give our current expectations, 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, the timing of anticipated asset sales and proceeds to be received therefrom, the expected use of proceeds of anticipated asset sales, 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 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.
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. In addition, this news release contains time-sensitive information that reflects management’s best judgment only as of the date of this news release.
Brad Sylvester, CFA