The FINANCIAL — Chesapeake Energy Corporation on February 5 provided an update to certain operational results for the 2017 fourth quarter as well as recent asset divestiture activity. Highlights include:
Average 2017 fourth quarter production projected at 593,000 boe per day, including oil production of 100,000 barrels per day, as previously targeted
Three Mid-Continent sales agreements for approximately $500 million
Sold approximately 4.3 million shares of FTSI for proceeds of $78 million, retain approximately 22.0 million shares
Average daily production for the 2017 fourth quarter is currently projected to be approximately 593,000 barrels of oil equivalent (boe) per day, representing an increase of 15% year over year and 10% sequentially when adjusting for asset sales. This volume consisted of approximately 100,000 barrels of oil, 2.6 billion cubic feet of natural gas and 59,500 bbls of natural gas liquids per day. The increase in production was primarily driven by stronger oil production from the company’s Eagle Ford operating area, as well as from significantly higher gas production from its Marcellus and Haynesville operating areas.
Additionally, the company signed three separate sales agreements in the 2017 fourth quarter and 2018 first quarter for properties in its Mid-Continent operating area for aggregate consideration of approximately $500 million. One of the dispositions closed in January 2018, while two are subject to certain customary closing adjustments and are expected to close by the end of the 2018 second quarter. Included in the sale are producing properties, related property, plant and equipment and undeveloped acreage in the company’s Mississippian Lime operating area, resulting in an exit from the Mississippian Lime play of the northern Anadarko Basin, and other properties in central and western Oklahoma. In total, these proposed dispositions include approximately 238,000 net acres and 3,000 producing wells that are currently producing 23,000 boe per day (approximately 25% oil) net to Chesapeake. The company intends to use the proceeds from these divestitures to reduce outstanding borrowings under its revolving credit facility in the first half of 2018 or to repurchase higher coupon secured or unsecured debt to reduce annual interest expense, dependent upon market conditions, according to Chesapeake Energy Corporation.
FTS International (NYSE: FTSI), a provider of hydraulic fracturing services in North America and a company in which Chesapeake has owned a significant stake since 2006, completed its initial public offering of common shares on February 6, 2018. Chesapeake sold approximately 4.3 million shares in the initial public offering for approximately $78 million in proceeds (before underwriting fees and expenses) and continues to hold approximately 22.0 million shares in the publicly traded company.
As of December 31, 2017, Chesapeake had $781 million of outstanding borrowings under its revolving credit facility and had used $116 million of the revolving credit facility for various letters of credit. With cash on hand and available capacity under its revolving credit facility, the company had liquidity of approximately $2.9 billion as of December 31, 2017.
Doug Lawler, Chesapeake’s Chief Executive Officer, commented, “We continue to deliver on our strategy, with notable accomplishments in 2017, including fourth quarter oil production of 100,000 barrels per day and total production of 593,000 barrels of oil equivalent per day. We continue to demonstrate increased productivity and capital efficiency from our investments by delivering these production volumes with a fourth quarter capital spend of roughly $525 million, inclusive of capitalized interest. As a result, we currently expect cash flow before changes in working capital of more than $550 million for the 2017 fourth quarter, or approximately $470 million after changes in working capital.
“In 2018, we are committed to making meaningful progress in decreasing the amount of debt outstanding on our balance sheet and improving our margins. The pending sale of our Mississippian Lime and other Mid-continent assets, as well as our sale of approximately 4.3 million shares of FTSI, represent a strong start. We will continue to pursue additional asset divestitures in 2018 to further reduce debt and interest expense burden and accelerate value from properties that are presently not effectively competing for capital in our portfolio.
“Additionally, through disciplined capital spending, reducing our cycle times and cash costs, and improving our base production, we remain committed to achieving our goal of cash flow neutrality. To that end, we expect lower sequential production in the 2018 first quarter, as compared to the 2017 fourth quarter, as a result of a lower number of wells scheduled to be placed on production in January and February due to well production curtailments associated with recent extreme cold temperatures in several of our producing regions, and these planned asset sales. We currently forecast our 2018 production to build throughout the year, ultimately resulting in flat production growth on a year over year basis, but with lower capital spending. We will disclose more about our 2018 plan and guidance with earnings on February 22.
“We made significant progress across all areas of our company in 2017 and look forward to making 2018 a differential year for Chesapeake.”