Drilling Down

Chesapeake Reports $14.9B Operating Loss in 2015

OKLAHOMA CITY –Chesapeake Energy Corp. this morning reported a net loss available to common stockholders of $14.9 billion, or $22.43 per fully diluted share.

After adjustments, primarily noncash impairments of carrying value of the company’s oil and gas properties, the full year adjusted net loss was $329 million, or 20 cents per fully diluted share, compared to adjusted net income of $957 million, or $1.49 per fully diluted share, for 2014.

Chesapeake is the most prolific oil and gas driller in Ohio’s Utica shale play and its financial results directly effect landowners where its wells are drilled.

Here is the full text of Chesapeake’s earnings release:

Chesapeake Energy Corp. today provided financial and operational guidance for 2016 and reported financial and operational results for the 2015 full year and fourth quarter. Highlights include:

  • Planned 2016 total capital expenditures ranging from $1.3 to $1.8 billion, approximately 57% lower than 2015 levels
  • Projected 2016 production decline of 0% to 5%, adjusted for asset sales
  • $700 million in asset divestitures closed or under signed sales agreements since year-end 2015; $500 million in net proceeds after repurchase of three Volumetric Production Payments
  • Targeting an additional $500 million to $1 billion in asset divestitures in 2016
  • Average 2015 production of approximately 679,200 boe per day, an increase of 8% year over year, adjusted for asset sales
  • 2015 adjusted net loss of $0.20 per fully diluted share and 2015 adjusted ebitda of $2.385 billion

Doug Lawler, Chesapeake’s CEO, commented, “In light of the challenging commodity price environment, our focus for 2016 is to improve our liquidity, further reduce our cost structure and address our near-term debt maturities to strengthen our balance sheet. Our tactical focus areas remain asset divestitures, of which we are pleased to have approximately $500 million in net proceeds closed or under signed sales agreements, liability management and open market purchases of our bonds. We are also renegotiating gathering, transportation and processing contracts to better align with our current development plans and market conditions, aggressively working to minimize the decline of our base production and making shorter-cycle investments with our 2016 capital program. We have set our initial capital program for the year at $1.3 to $1.8 billion, including capitalized interest, and will remain flexible to raise or lower based on commodity prices.”

2016 Capital Program and Production Outlook

Chesapeake is budgeting total capital expenditures (including capitalized interest) of $1.3 to $1.8 billion for 2016. Using the midpoint of the range, this represents a 57% reduction from the company’s 2015 total capital expenditures of $3.6 billion. The company’s planned 2016 capital program will be focused on shorter cash cycle projects that generate positive rates of return in today’s commodity price environment and in mitigation of the company’s commitment obligations. As a result, Chesapeake’s planned 2016 capital program will be dedicated to more completions and less drilling, with total completion spending representing approximately 70% of the company’s total drilling and completion program. This program, combined with the improving quality of the company’s operations, its capital efficiency and lower service costs will provide incrementally positive economics, even in today’s commodity price environment.

In 2016, Chesapeake plans to place approximately 330 to 370 wells on production, resulting in total production that declines approximately 0% to 5% compared to 2015, after adjusting for asset sales. At February 23, 2016, the company had approximately $700 million in asset divestitures that had closed or that signed and are expected to close between now and the end of the 2016 second quarter. The company expects that these asset sales will result in lower production of approximately 31,000 barrels of oil equivalent (boe) per day of production in 2016. The planned divestiture of certain of the company’s Granite Wash assets in Western Oklahoma and the Texas Panhandle requires Chesapeake to repurchase the overriding royalty interests related to three of the company’s previous volumetric production payment transactions for approximately $200 million. As a result, the projected net impact to the company’s full year 2016 production will be a reduction of approximately 25,000 boe per day.

In addition, to help improve the company’s cash flow and provide protection against lower commodity prices, Chesapeake has hedged more than 590 billion cubic feet of its projected 2016 natural gas production at approximately $2.84 per mcf and more than 19 million barrels of its projected 2016 oil production at approximately $47.79 per barrel. A summary of the company’s planned 2016 capital program is shown below in the “Capital Spending and Cost Overview” section, while the company’s 2016 forecasted production volumes are provided in the Outlook dated February 24, 2016.

2015 Full Year Results

For the 2015 full year, Chesapeake reported a net loss available to common stockholders of $14.856 billion, or $22.43 per fully diluted share. Items typically excluded by securities analysts in their earnings estimates reduced net income available to common stockholders for the 2015 full year by approximately $14.527 billion. The primary sources of this reduction were quarterly noncash impairments of 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 used in the company’s impairment calculations.  Adjusting for these items, 2015 full year adjusted net loss available to common stockholders was $329 million, or $0.20 per fully diluted share, compared to adjusted net income available to common stockholders of $957 million, or $1.49 per fully diluted share, for the 2014 full year.

Adjusted ebitda was $2.385 billion for the 2015 full year, compared to $4.945 billion for the 2014 full year.  Operating cash flow, which is defined as cash flow provided by operating activities before changes in assets and liabilities, was $2.268 billion for the 2015 full year, compared to $5.146 billion for the 2014 full year. 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 and lower production volumes, partially offset by higher realized hedging gains and lower production expenses, general and administrative (G&A) expenses and production taxes. Realized hedging gains on the company’s oil and gas production resulted in additional revenues of approximately $1.3 billion for the 2015 full year, on a pre-tax basis, compared to realized hedging losses of approximately $375 million for the 2014 full year.

Adjusted net income available to common stockholders, operating cash flow, ebitda and adjusted ebitda are non-GAAP financial measures.  Reconciliations of these measures to comparable financial measures calculated in accordance with generally accepted accounting principles are provided in this release.

Chesapeake’s daily production for the 2015 full year averaged 679,200 barrels of oil equivalent (boe), a year-over-year increase of 8%, adjusted for asset sales.  Average daily production consisted of approximately 114,000 barrels (bbls) of oil, 2.9 billion cubic feet (bcf) of natural gas and 76,700 bbls of NGL.  Adjusted for asset sales, 2015 full year average daily oil production increased 7%, average daily natural gas production increased 7% and average daily NGL production increased 14%.

2015 Fourth Quarter Financial Results

For the 2015 fourth quarter, Chesapeake reported a net loss available to common stockholders of $2.228 billion, or $3.36 per fully diluted share. Items typically excluded by securities analysts in their earnings estimates reduced 2015 fourth quarter net income by approximately $2.060 billion. The primary source of this reduction was a noncash impairment of 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 December 31, 2015, compared to September 30, 2015. Adjusting for these items, the 2015 fourth quarter net loss available to common stockholders was $168 million, or $0.16 per fully diluted share, which compares to adjusted net income available to common stockholders of $34 million, or $0.11 per fully diluted share, in the 2014 fourth quarter.

Adjusted ebitda was $298 million in the 2015 fourth quarter, compared to $916 million in the 2014 fourth quarter. Operating cash flow was $386 million in the 2015 fourth quarter, compared to $993 million in the 2014 fourth quarter. The year-over-year decreases in adjusted ebitda and operating cash flow were primarily the result of lower realized oil, natural gas and NGL prices and lower production volumes, partially offset by higher realized hedging gains and lower production expenses, G&A expenses and production taxes. Realized hedging gains on the company’s oil and gas production resulted in additional revenues of approximately $334 million for the 2015 fourth quarter, on a pre-tax basis, compared to realized hedging gains of approximately $133 million for the 2014 fourth quarter.

Adjusted net income available to common stockholders, operating cash flow, ebitda and adjusted ebitda are non-GAAP financial measures. Reconciliations of these measures to comparable financial measures calculated in accordance with generally accepted accounting principles are provided in this release.

Chesapeake’s daily production for the 2015 fourth quarter averaged approximately 661,100 boe, a year-over-year increase of 1% adjusted for asset sales. Average daily production in the 2015 fourth quarter consisted of approximately 100,700 bbls of oil, 2.9 bcf of natural gas and 75,600 bbls of NGL. Adjusted for asset sales, 2015 fourth quarter average daily oil production decreased 7%, average daily natural gas production increased 3% and average daily NGL production increased 4%.

Capital Spending and Cost Overview

Chesapeake’s drilling and completion capital expenditures during the 2015 full year were approximately $3.0 billion, and capital expenditures for the acquisition of unproved properties, geological and geophysical costs and other property, plant and equipment were approximately $231 million, for a total of approximately $3.2 billion, within the company’s forecasted range of $3.0 to $3.5 billion. Total capital expenditures, including capitalized interest of $424 million, were approximately $3.6 billion, compared to $6.7 billion in 2014, and are reconciled below. Chesapeake’s total capital expenditures, including capitalized interest of $88 million, were approximately $548 million in the 2015 fourth quarter compared to approximately $1.8 billion in the 2014 fourth quarter.

 

 

Published by The Business Journal, Youngstown, Ohio.