The FINANCIAL — Chesapeake Energy Corporation on May 6 reported financial and operational results for the 2015 first quarter. Highlights include:
Average production of approximately 686,000 boe per day, an increase of 14% year over year, adjusted for asset sales
Adjusted net income of $0.11 per fully diluted share and adjusted ebitda of $928 million
2015 total production guidance increased to 640 – 650 mboe per day
2015 capital guidance of approximately $3.5 – $4.0 billion reiterated
Additional 600 – 700 new Eagle Ford locations added following successful down spacing test results
Doug Lawler, Chesapeake’s Chief Executive Officer, commented, “Chesapeake is meeting the challenge of low commodity prices head-on and delivered a very strong first quarter. Adjusted for asset sales, our production in the 2015 first quarter grew by 14% compared to the 2014 first quarter. Our cash costs remain at industry-low levels and we expect our assets to continue delivering greater efficiencies even as we reduce our activity levels throughout 2015. We remain on target to balance our capital spending and our cash flow by year-end, and the capital efficiencies that we are seeing in each of our operating areas are helping to strengthen that cash flow. During this challenging commodity price environment, our talented employees and high-quality assets are delivering competitive, differential performance.”
2015 First Quarter Financial Results
For the 2015 first quarter, Chesapeake reported a net loss available to common stockholders of $3.782 billion, or ($5.72) per fully diluted share, which compares to net income available to common stockholders of $374 million, or $0.54 per fully diluted share in the 2014 first quarter. Items typically excluded by securities analysts in their earnings estimates reduced 2015 first quarter net income by approximately $3.824 billion on an after-tax basis and are presented on Page 11 of this release. The primary source of this reduction was an impairment in the carrying value of Chesapeake’s oil and natural gas properties largely resulting from significant decreases in the trailing 12-month average first-day-of-the-month oil and natural gas prices as of March 31, 2015, compared to December 31, 2014. Adjusting for this and other items, 2015 first quarter net income available to common stockholders was $42 million, or $0.11 per fully diluted share, which compares to adjusted net income available to common stockholders of $405 million, or $0.59 per fully diluted share, in the 2014 first quarter.
Adjusted ebitda was $928 million in the 2015 first quarter, compared to $1.515 billion in the 2014 first quarter. Operating cash flow was $910 million in the 2015 first quarter, compared to $1.614 billion in the 2014 first quarter. The year-over-year decreases in adjusted ebitda and operating cash flow were primarily the result of lower realized oil, natural gas and natural gas liquid (NGL) prices, according to Chesapeake Energy.
2015 First Quarter Average Daily Production of 686,000 Boe Increased 14% Year Over Year and 2% Sequentially, Adjusted for Asset Sales
Chesapeake’s daily production for the 2015 first quarter averaged approximately 686,000 barrels of oil equivalent (boe), a year-over-year increase of 14%, adjusted for asset sales. Average daily production in the 2015 first quarter consisted of approximately 121,900 barrels (bbls) of oil, 2.9 billion cubic feet (bcf) of natural gas and 75,800 bbls of NGL, which represent year-over-year increases of 17%, 12% and 19%, respectively, adjusted for asset sales.
Capital Spending and Cost Overview
Chesapeake’s drilling and completion capital expenditures during the 2015 first quarter were approximately $1.3 billion, and capital expenditures for leasehold, geological and geophysical costs and other property, plant and equipment were approximately $63 million, for a total of approximately $1.4 billion. Total capital expenditures, including capitalized interest of $123 million, were approximately $1.5 billion in the 2015 first quarter, compared to approximately $1.8 billion in the 2014 fourth quarter and $1.4 billion in the 2014 first quarter.
Chesapeake’s focus on cost discipline continued to generate reductions in costs associated with production and general and administrative (G&A) expenses. Average production expenses during the 2015 first quarter were $4.84 per boe, a decrease of 5% from the 2014 fourth quarter and an increase of 2% year over year. G&A expenses (including stock-based compensation) during the 2015 first quarter were $0.91 per boe, a decrease of 34% from the 2014 fourth quarter and 30% year over year.
Operational Results – Southern Division
Eagle Ford Shale (South Texas): Eagle Ford net production averaged approximately 113 thousand barrels of oil equivalent (mboe) per day (242 gross operated mboe per day) during the 2015 first quarter, an increase of 7% sequentially. The full-year 2014 average completed well cost was $5.9 million with an average completed lateral length of 5,850 feet and 18 frac stages, compared to the full-year 2013 average completed well cost of $6.9 million with an average completed lateral length of 5,850 feet and 18 frac stages. Well cost-reduction efforts continue and the company anticipates completed well costs of $5.5 million by year-end 2015. The company has successfully drilled five wells with laterals in excess of 10,000 feet. This technical achievement will heavily influence future development in the field as the company prioritizes front-loading its drill schedule with this well design. Chesapeake has successfully completed down spacing tests in various sections of its acreage, adding 600 – 700 incremental locations to its undrilled inventory. The company plans to test its first Upper Eagle Ford well in the 2015 fourth quarter. The average peak production rate of the 105 wells that commenced first production in the Eagle Ford during the 2015 first quarter was approximately 763 boe per day.
Haynesville Shale and Bossier Shale (Northwest Louisiana): Haynesville net production averaged approximately 616 million cubic feet of natural gas equivalent (mmcf) per day (996 gross operated mmcf per day) during the 2015 first quarter, an increase of 4% sequentially. The full-year 2014 average completed well cost was $8.4 million with an average completed lateral length of 4,900 feet and 14 frac stages, compared to an average completed well cost of $8.9 million in 2013 with an average completed lateral length of 4,400 feet and 18 frac stages. In April 2015, the company placed its initial two modern extended lateral (7,500 feet) Haynesville wells on line, the Nguyen 8-15-14 1H ALT and the Nguyen 5-15-14 2H ALT at peak 24-hour rates of 18.5 mmcf per day and 16.7 mmcf per day, respectively, with flowing surface pressures of approximately 600 PSI per foot greater than surrounding in-unit wells. The average peak production rate of the 19 wells that commenced first production in the Haynesville during the 2015 first quarter was approximately 15.4 mmcf per day. Chesapeake also recently turned in line two successful tests in the Bossier Shale utilizing enhanced stimulation techniques. These wells are producing at a restricted rate of 12.0 mmcf per day paving the way for future Bossier development of 200 – 400 wells that can utilize both enhanced stimulation and extended laterals.
Mid-Continent North: Mississippian Lime (Northern Oklahoma): Mississippian Lime net production averaged approximately 32 mboe per day (75 gross operated mboe per day) during the 2015 first quarter, an increase of 11% sequentially. The full-year 2014 average completed well cost was $3.0 million with an average completed lateral length of 4,500 feet, compared to an average completed well cost of $3.5 million in 2013 with an average completed lateral length of 4,500 feet. The company anticipates completed well costs of $2.5 million in 2015, resulting in a 45% capital reduction in three years. The average peak production rate of the 48 wells that commenced first production in the Mississippian Lime during the 2015 first quarter was approximately 733 boe per day.
Operational Results – Northern Division
Utica Shale (Eastern Ohio): Utica net production averaged approximately 110 mboe per day (190 gross operated mboe per day) during the 2015 first quarter, an increase of 10% sequentially. The full-year 2014 average completed well cost was $7.2 million with an average completed lateral length of 6,200 feet and 29 frac stages, compared to an average completed well cost of $6.7 million in 2013 with an average completed lateral length of 5,150 feet and 17 frac stages. Chesapeake anticipates average completed well costs of $8.2 million in 2015 while extending laterals to 7,900 feet with 41 frac stages. The average peak production rate of the 38 wells that commenced first production in the Utica during the 2015 first quarter was approximately 1,272 boe per day.
Marcellus Shale (Northern Pennsylvania): Marcellus net production averaged approximately 832 mmcf per day (1.932 gross operated bcf per day) during the 2015 first quarter, an increase of 2% sequentially. The 2014 full-year average completed well cost was $7.5 million with an average completed lateral length of 5,950 feet and 27 frac stages, compared to an average completed well cost of $7.9 million in 2013 with an average completed lateral length of 5,400 feet and 13 frac stages. With ample existing drilled inventory and significant curtailed volumes, Chesapeake expects to maintain production at current levels throughout 2015 in the Marcellus. The average peak production rate of the 16 wells that commenced first production in the northern Marcellus during the 2015 first quarter was approximately 15.8 mmcf per day.
Powder River Basin (PRB): Niobrara and Upper Cretaceous (Wyoming): PRB net production averaged approximately 20 mboe per day (30 gross operated mboe per day) during the 2015 first quarter, an increase of 10% sequentially. The 2014 full-year average completed well cost (including multiple exploratory wells) was $10.6 million per well with an average completed lateral length of 5,425 feet and 20 frac stages, compared to an average completed well cost of $10.1 million per well in 2013 with an average completed lateral length of 5,050 feet and 15 frac stages. Chesapeake continues to improve operational efficiency and has successfully tested multiple Upper Cretaceous test wells. The average peak production rate of the 11 wells that commenced first production in the PRB during the 2015 first quarter was approximately 1,594 boe per day.
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