The FINANCIAL — 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 million compared to 2017 first quarter.
Reduced $581 million principal amount of long-term debt in 2018 first quarte.r
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 $1.44 per 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.
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.
Operations Update
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.
Includes the effects of realized gains (losses) from hedging, but excludes the effects of unrealized gains (losses) from hedging.
Excludes expenses associated with stock-based compensation, which are recorded in general and administrative expenses in Chesapeake’s Condensed Consolidated Statement of Operations.
Defined as cash flow provided by operating activities before changes in components of working capital and other assets and liabilities. This is a non-GAAP measure. See reconciliation to cash provided by (used in) operating activities on page 12.
Defined as net income (loss) before interest expense, income taxes and depreciation, depletion and amortization expense, as adjusted to remove the effects of certain items detailed on page 13. This is a non-GAAP measure. See reconciliation of net income (loss) to EBITDA on page 12 and reconciliation of EBITDA to adjusted EBITDA on page 13.
Defined as net income (loss) attributable to Chesapeake, as adjusted to remove the effects of certain items detailed on page 11. This is a non-GAAP measure. See reconciliation of net income to adjusted net income (loss) available to Chesapeake on page 11.
Our presentation of diluted adjusted net income (loss) attributable to Chesapeake per share excludes 60 million and 208 million shares for the three months ended March 31, 2018 and 2017, respectively, considered antidilutive when calculating diluted earnings per share.
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