CHESAPEAKE ENERGY CORPORATION OKLAHOMA CITY, May 4, 2017 /PRNewswire/ -- Chesapeake Energy Corporation (NYSE:CHK) today reported financial and operational results for the 2017 first quarter plus other recent developments. Highlights include:
-- Average 2017 first quarter production of 528,000 boe per day, above
midpoint of guidance of 515,000 to 535,000 boe per day
-- Oil production expected to reach 100,000 barrels per day by year-end
2017; average 2017 first quarter oil production of 83,700 barrels per
day, above midpoint of guidance of 80,000 to 85,000 barrels per day
-- Combined production and G&A expenses per boe down 2% quarter over
quarter
-- Gathering, processing and transportation expenses per boe down 6%
quarter over quarter
Doug Lawler, Chesapeake's Chief Executive Officer, commented, "Our operational momentum continues to build in our Eagle Ford, Powder River Basin and Mid-Continent oil assets, as we remain on track to reach our production target of 100,000 barrels of oil per day by year-end. We expect our production to grow significantly in the second half of 2017 as we place more wells to sales, and as a result, we have raised the bottom range of our 2017 production guidance. We remain focused on improving our balance sheet and decreasing our cash costs, while improving the capital efficiency from our operations. We look forward to reporting our results as the year progresses."
2017 First Quarter Results
For the 2017 first quarter, Chesapeake's revenues increased by 41% year over year and 36% quarter over quarter primarily due to an increase in the average realized commodity prices for the company's production and unrealized hedging gains, partially offset by a decrease in production volumes sold. Average daily production for the 2017 first quarter of approximately 528,000 barrels of oil equivalent (boe) consisted of approximately 83,700 barrels (bbls) of oil, 2.342 billion cubic feet (bcf) of natural gas and 53,900 bbls of natural gas liquids (NGL).
Average production expenses during the 2017 first quarter were $2.84 per boe, while G&A expenses (including stock-based compensation) during the 2017 first quarter were $1.35 per boe. Combined production and G&A expenses (including stock-based compensation) during the 2017 first quarter were $4.19 per boe, an increase of 1% year over year and a decrease of 2% quarter over quarter. Gathering, processing and transportation expenses during the 2017 first quarter were $7.47 per boe, a decrease of 5% year over year and 6% quarter over quarter, primarily due to the company's Barnett and Devonian divestitures in 2016.
Chesapeake reported net income available to common stockholders of $75 million, or $0.08 per share, while the company's ebitda for the 2017 first quarter was $455 million. Adjusting for unrealized gains on commodity derivatives, impairments related to the reduction of crude transportation commitments on the Seaway Pipeline and other related natural gas transportation obligations of approximately $393 million, the loss on exchange of preferred stock and other items, including those that are typically excluded by securities analysts, the 2017 first quarter adjusted net income attributable to Chesapeake was $212 million, or $0.23 per common share, while the company's adjusted ebitda was $525 million in the 2017 first quarter. Reconciliations of financial measures calculated in accordance with GAAP to non-GAAP measures are provided on pages 11 - 12 of this release.
Capital Spending Overview
Chesapeake's total capital investments were approximately $576 million during the 2017 first quarter, compared to approximately $463 million in the 2016 fourth quarter and $365 million in the 2016 first quarter. A summary of the company's guidance for 2017 is provided under "Management's Outlook as of May 3, 2017," beginning on page 16.
2017 2016 2016
Operated activity comparison Q1 Q4 Q1
---------------------------- --- --- ---
Average rig count 16 12 8
Gross wells spud 87 60 41
Gross wells completed 99 82 57
Gross wells connected 76 110 80
===================== === === ===
Type of cost ($ in millions)
Drilling and completion costs $506 $365 $281
Exploration costs, leasehold and additions
to other PP&E 19 38 16
------------------------------------------ --- --- ---
Subtotal capital expenditures $525 $403 $297
Capitalized interest 51 60 68
Total capital expenditures $576 $463 $365
========================== ==== ==== ====
Balance Sheet and Liquidity
As of March 31, 2017, Chesapeake's principal debt balance was approximately $9.1 billion with $249 million in cash on hand, compared to $10.0 billion with $882 million in cash on hand as of December 31, 2016. The company's total liquidity as of March 31, 2017 was approximately $3.3 billion, which included cash on hand and borrowing capacity of approximately $3.1 billion under the company's senior secured revolving credit facility, which had no outstanding borrowings and $697 million utilized for various letters of credit (including the $461 million supersedeas bond with respect to the 2014 redemption of Chesapeake's 6.775% Senior Notes due 2019 ("2019 Notes") litigation).
On April 24, 2017, Chesapeake received notice from the U.S. Supreme Court that it would not review its appeal related to the company's 2019 Notes litigation. As a result of this decision, the company satisfied the judgment of $441 million on April 28, 2017, with cash on hand and from the company's revolving credit facility. While the company is disappointed in the Supreme Court's decision, it had posted a supersedeas bond for the full amount (reflected as an outstanding letter of credit under the company's revolving credit facility described above), and therefore the judgment had no further impact on liquidity. As of May 1, 2017, after making the judgment payment and pro forma the relief of the associated letters of credit, Chesapeake's liquidity was approximately $3.3 billion.
Operations Update
Chesapeake's average daily production for the 2017 first quarter was approximately 528,000 boe and is further detailed in the table below. Chesapeake's projected production volumes and capital expenditure program are subject to capital allocation decisions throughout the year and may be adjusted based on prevailing market conditions.
2017 2016 2016
Operating area net production
(mboe/day) Q1 Q4 Q1
----------------------------- ---
Eagle Ford 96 104 91
Haynesville (1) 121 135 112
Marcellus 146 134 144
Utica 96 108 138
Mid-Continent 57 53 93
Powder River Basin 12 12 17
Barnett - 19 69
Other - 10 8
Total production 528 575 672
================ === === ===
(1) Properties sold during the 2017
first quarter contributed
approximately 14 mboe/day in the
2016 fourth quarter.
Chesapeake is currently utilizing 19 drilling rigs (above the 2017 first quarter average of 16) across its operating areas, seven of which are located in the Eagle Ford Shale, five in the Mid-Continent area, three in the Haynesville Shale, two in the Powder River Basin and two in Northeast Appalachia. Chesapeake plans to utilize an average of 17 rigs throughout the year and intends to spud and place on production approximately 400 and 450 gross operated wells, respectively, in 2017.
In the Eagle Ford Shale, Chesapeake placed the Blakeway 1C DIM 2H well in production in March 2017 and it reached a peak production rate of approximately 2,800 bbls of oil per day (3,184 boe per day). The Blakeway well had a 9,800' lateral and was completed with higher proppant concentration per foot of lateral and reduced cluster spacing compared to the company's historical completion methods. The company expects to place several more wells on production with these enhanced completion techniques in 2017. The company also drilled its first Upper Eagle Ford Shale well, the Blakeway 3D DIM 2H, with an 11,300' lateral. This well was fracture stimulated and placed in production on May 3, 2017. The company expects to report a production test rate on this well later this month.
In the Powder River Basin (PRB), Chesapeake's first Turner well, the Sundquist 9-34-71 USA A TR 13H, was drilled with a 7,100' lateral and placed in production in March 2017, reaching a peak rate of 2,560 boe per day (78% oil). Average daily gross cumulative production from the Sundquist well was approximately 1,522 boe per day during its first 30 days of production, resulting in cumulative gross oil production of approximately 36,000 bbls over that time. The company expects to place its second Turner well, the Rankin 5-33-68 A TR 1H drilled with a 4,500' lateral, on production soon and report a production test rate on this well later this month. Chesapeake plans to drill up to 10 additional wells in the Turner formation in 2017. Chesapeake also placed on production its first of two scheduled Parkman wells this year, the Sundquist 9-34-71 USA A PK 15H, with a 7,000' lateral which, while currently production constrained, has reached a peak rate of 714 bbls of oil per day (763 boe per day). Chesapeake also placed three notable Niobrara wells on production during the 2017 first quarter which had been drilled, but uncompleted, that had peak rates of approximately 750, 1,155 and 1,215 bbls of oil per day (1,575, 1,650 and 1,930 boe per day), respectively. Chesapeake expects additional results from these and other formations in the PRB, including the Sussex and a deeper Mowry test, later this year.
In the Mid-Continent, Chesapeake drilled its first extended-lateral well in Major County targeting the Saint Genevieve formation (Meramec silt). This well had a completed lateral length of 9,900' and was placed in production in late April of 2017. The company expects to report a production test rate on this well later this month. Chesapeake expects to drill up to 20 additional extended-lateral wells in the Saint Genevieve formation in 2017. The company also expects to test additional formations in its Mid-Continent area, including the Chester limestone and sandstone formations, later this year. Chesapeake controls approximately 230,000 net acres that it believes are prospective for the Chester and has drilled and collected two full core samples of the section earlier this year to help optimize its completion designs. The company expects first results from the Chester in the third and fourth quarters of 2017.
Key Financial and Operational Results
The table below summarizes Chesapeake's key financial and operational results during the 2017 first quarter compared to results in prior periods.
Three Months Ended
03/31/17 12/31/16 03/31/16
-------- -------- --------
Oil
equivalent
production
(in mmboe) 48 53 61
Oil
production
(in mmbbls) 8 8 9
Average
realized
oil price
($/bbl)(a) 51.72 47.37 37.74
Natural gas
production
(in bcf) 211 236 276
Average
realized
natural gas
price
($/mcf)(a) 3.02 2.41 2.29
NGL
production
(in mmbbls) 5 5 6
Average
realized
NGL price
($/bbl)(a) 24.04 20.90 11.44
Production
expenses
($/boe) (2.84) (2.98) (3.36)
Gathering,
processing
and
transportation
expenses
($/boe) (7.47) (7.92) (7.88)
Oil -
($/bbl) (3.85) (3.87) (3.29)
Natural Gas
-($/mcf) (1.35) (1.46) (1.46)
NGL -
($/bbl) (8.47) (8.05) (7.59)
Production
taxes
($/boe) (0.47) (0.38) (0.30)
General and
administrative
expenses
($/boe)(b) (1.18) (1.11) (0.66)
Stock-based
compensation
($/boe) (0.17) (0.17) (0.13)
DD&A of oil
and natural
gas
properties
($/boe) (4.15) (4.03) (4.30)
DD&A of
other
assets
($/boe) (0.44) (0.40) (0.48)
Interest
expense
($/boe)(a) (1.97) (1.61) (0.98)
Marketing,
gathering
and
compression
net margin
($ in
millions)(c) (44) (25) 18
Net cash
provided by
(used in)
operating
activities
($ in
millions) 99 (254) (421)
Net cash
provided by
(used in)
operating
activities
($/boe) 2.06 (4.79) (6.90)
Operating
cash flow
($ in
millions)(d) (14) (120) 263
Operating
cash flow
($/boe) (0.29) (2.27) 4.29
Adjusted
ebitda ($
in
millions)(e) 525 385 282
Adjusted
ebitda
($/boe) 11.05 7.28 4.61
Net income
(loss)
available
to common
stockholders
($ in
millions) 75 (740) (1,111)
Income
(loss) per
share -
diluted ($) 0.08 (0.83) (1.66)
Adjusted net
income
(loss)
attributable
to
Chesapeake
($ in
millions)(f) 212 64 (69)
Adjusted
income
(loss) per
share
($)(g) 0.23 0.07 (0.11)
(a) Includes the effects of realized
gains (losses) from hedging, but
excludes the effects of
unrealized gains (losses) from
hedging.
(b) Excludes expenses associated with
stock-based compensation and
restructuring and other
termination costs.
(c) Includes revenue, operating
expenses and for the three months
ended March 31, 2016, unrealized
gains (losses) on supply contract
derivatives, but excludes
depreciation and amortization of
other assets. For the three
months ended March 31, 2016,
unrealized gains were $20
million. No other period had such
gains (losses).
(d) Defined as cash flow provided by
operating activities before
changes in assets and
liabilities. Operating cash flow
for the three months ended March
31, 2017 includes $290 million
paid to assign an oil
transportation agreement to a
third party and $103 million paid
to terminate future natural gas
transportation commitments.
(e) Defined as net income before
interest expense, income taxes
and depreciation, depletion and
amortization expense, as adjusted
to remove the effects of certain
items detailed on page 14.
(f) Defined as net income (loss)
attributable to Chesapeake, as
adjusted to remove the effects of
certain items detailed on pages
11 -12.
(g) Our presentation of diluted
adjusted net income (loss) per
share excludes shares considered
antidilutive when calculating
diluted earnings per share in
accordance with GAAP.
2017 First Quarter Financial and Operational Results Conference Call Information
A conference call to discuss this release has been scheduled on Thursday, May 4, 2017 at 9:00 am EDT. The telephone number to access the conference call is 719-325-2224 or toll-free 888-466-4582. The passcode for the call is 6673789. 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 6673789. 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. The company also owns oil and natural gas marketing and natural gas compression businesses.
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, 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, general and administrative expenses, capital expenditures, the timing of anticipated noncore asset sales and proceeds to be received therefrom, projected cash flow and liquidity, our ability to enhance our cash flow and financial flexibility, plans and objectives for future operations (including our ability to optimize base production and execute gas gathering, processing and transportation commitments), 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; potential challenges by Seventy Seven Energy Inc.'s (SSE) former creditors in connection with SSE's recently completed bankruptcy under Chapter 11 of the U.S. Bankruptcy Code; an interruption in operations at our headquarters due to a catastrophic event; the continuation of suspended dividend payments on our common stock; 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.
INVESTOR CONTACT: MEDIA CONTACT:
Brad Sylvester, CFA Gordon Pennoyer
(405) 935-8870 (405) 935-8878
ir@chk.com media@chk.com
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in millions, except per share data)
(unaudited)
Three Months Ended
March 31,
---------
2017 2016
---- ----
REVENUES:
Oil, natural gas and NGL $1,469 $993
Marketing, gathering and compression 1,284 960
---
Total Revenues 2,753 1,953
----- -----
OPERATING EXPENSES:
Oil, natural gas and NGL production 135 206
Oil, natural gas and NGL gathering,
processing and transportation 355 482
Production taxes 22 18
Marketing, gathering and compression 1,328 942
General and administrative 65 48
Provision for legal contingencies (2) 33
Oil, natural gas and NGL depreciation,
depletion and amortization 197 263
Depreciation and amortization of other
assets 21 29
Impairment of oil and natural gas
properties - 997
Impairments of fixed assets and other 391 38
Net gains on sales of fixed assets - (4)
--- ---
Total Operating Expenses 2,512 3,052
----- -----
INCOME (LOSS) FROM OPERATIONS 241 (1,099)
--- ------
OTHER INCOME (EXPENSE):
Interest expense (95) (62)
Loss on sale of investment - (10)
Gains (losses) on purchases or exchanges
of debt (7) 100
Other income 3 3
--- ---
Total Other Income (Expense) (99) 31
---
INCOME (LOSS) BEFORE INCOME TAXES 142 (1,068)
--- ------
Income Tax Expense 1 -
--- ---
NET INCOME (LOSS) 141 (1,068)
Net income attributable to
noncontrolling interests (1) -
--- ---
NET INCOME (LOSS) ATTRIBUTABLE TO
CHESAPEAKE 140 (1,068)
--- ------
Preferred stock dividends (23) (43)
Loss on exchange of preferred stock (41) -
Earnings allocated to participating
securities (1) -
---
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS $75 $(1,111)
=== =======
EARNINGS (LOSS) PER COMMON SHARE:
Basic $0.08 $(1.66)
===== ======
Diluted $0.08 $(1.66)
===== ======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (in
millions):
Basic 906 668
=== ===
Diluted 907 668
=== ===
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
(unaudited)
March 31, 2017 December 31,
2016
-------------- -------------
Cash and cash equivalents $249 $882
Other current assets 1,111 1,260
Total Current Assets 1,360 2,142
----- -----
Property and equipment, (net) 10,081 10,609
Other assets 258 277
--- ---
Total Assets $11,699 $13,028
======= =======
Current liabilities $2,788 $3,648
Long-term debt, net 9,509 9,938
Other long-term liabilities 605 645
Total Liabilities 12,902 14,231
------ ------
Preferred stock 1,671 1,771
Noncontrolling interests 256 257
Common stock and other
stockholders' equity (3,130) (3,231)
------ ------
Total Equity (Deficit) (1,203) (1,203)
------ ------
Total Liabilities and Equity $11,699 $13,028
======= =======
Common shares outstanding (in
millions) 908 896
=== ===
Principal amount of debt
outstanding $9,081 $9,989
====== ======
CHESAPEAKE ENERGY CORPORATION
SUPPLEMENTAL DATA - OIL, NATURAL GAS AND NGL PRODUCTION, SALES AND INTEREST EXPENSE
(unaudited)
Three Months Ended
March 31,
---------
2017 2016
---- ----
Net Production:
Oil (mmbbl) 8 9
Natural gas (bcf) 211 276
NGL (mmbbl) 5 6
Oil equivalent (mmboe) 48 61
Oil, natural gas and NGL Sales
($ in millions):
Oil sales $378 $255
Oil derivatives - realized gains
(losses)(a) 11 73
Oil derivatives - unrealized
gains (losses)(a) 94 (72)
Total oil sales 483 256
--- ---
Natural gas sales 653 483
Natural gas derivatives -
realized gains (losses)(a) (16) 150
Natural gas derivatives -
unrealized gains (losses)(a) 231 30
--- ---
Total natural gas sales 868 663
--- ---
NGL sales 116 74
NGL derivatives - realized gains
(losses)(a) 1 -
NGL derivatives - unrealized
gains (losses)(a) 1 -
---
Total NGL sales 118 74
--- ---
Total oil, natural gas and NGL
sales $1,469 $993
====== ====
Average Sales Price - excluding
gains (losses) on derivatives:
Oil ($ per bbl) $50.24 $29.34
Natural gas ($ per mcf) $3.10 $1.75
NGL ($ per bbl) $23.78 $11.44
Oil equivalent ($ per boe) $24.13 $13.28
Average Sales Price - including
realized gains (losses) on
derivatives:
Oil ($ per bbl) $51.72 $37.74
Natural gas ($ per mcf) $3.02 $2.29
NGL ($ per bbl) $24.04 $11.44
Oil equivalent ($ per boe) $24.06 $16.93
Interest Expense ($ in
millions):
Interest expense(b) $94 $62
Interest rate derivatives -
realized (gains) losses(c) (1) (3)
Interest rate derivatives -
unrealized (gains) losses(c) 2 3
Total Interest Expense $95 $62
=== ===
(a) Realized gains and losses include
the following items: (i)
settlements and accruals for
settlements of nondesignated
derivatives related to current
period production revenues, (ii)
prior period settlements for option
premiums and for early-terminated
derivatives originally scheduled to
settle against current period
production revenues, and (iii)
gains and losses related to de-
designated cash flow hedges
originally designated to settle
against current period production
revenues. Unrealized gains and
losses include the change in fair
value of open derivatives scheduled
to settle against future period
production revenues offset by
amounts reclassified as realized
gains and losses during the period.
Although we no longer designate our
derivatives as cash flow hedges for
accounting purposes, we believe
these definitions are useful to
management and investors in
determining the effectiveness of
our price risk management program.
(b) Net of amounts capitalized.
(c) Realized (gains) losses include
settlements related to the current
period interest accrual and the
effect of (gains) losses on early
termination trades. Unrealized
(gains) losses include changes in
the fair value of open interest
rate derivatives offset by amounts
reclassified to realized (gains)
losses during the period.
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED CASH FLOW DATA
($ in millions)
(unaudited)
THREE MONTHS ENDED: March 31, March 31,
2017 2016
--- ---- ----
Beginning cash $882 $825
---- ----
Net cash provided by
(used in) operating
activities 99 (421)
---
Cash flows from
investing
activities:
Drilling and
completion costs(a) (433) (265)
Acquisitions of
proved and unproved
properties(b) (95) (67)
Proceeds from
divestitures of
proved and unproved
properties 892 62
Additions to other
property and
equipment(c) (3) (10)
Proceeds from sales
of other property
and equipment 19 9
Other - (2)
--- ---
Net cash provided by
(used in) investing
activities 380 (273)
--- ----
Net cash used in
financing activities (1,112) (115)
------ ----
Change in cash and
cash equivalents (633) (809)
---- ----
Ending cash $249 $16
==== ===
(a) Includes capitalized interest of
$2 million and $2 million for
the three months ended March
31, 2017 and 2016,
respectively.
(b) Includes capitalized interest of
$49 million and $64 million for
the three months ended March
31, 2017 and 2016,
respectively.
(c) Includes capitalized interest of
a nominal amount and $1 million
for the three months ended
March 31, 2017 and 2016,
respectively.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF ADJUSTED NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
(in millions, except per share data)
(unaudited)
THREE MONTHS ENDED: March 31, 2017
------------------- --------------
$ Shares(a) $/Share(c) (d)
--- --------- --------------
Net income available to common
stockholders $75 907 $0.08
Adjustments:
Unrealized gains on commodity
derivatives (326) (0.36)
Provision for legal
contingencies (2) -
Impairments of fixed assets and
other 391 0.43
Losses on purchases or exchanges
of debt 7 0.01
Loss on exchange of preferred
stock 41 0.05
Income tax expense (benefit)(b) - -
Other 2 -
Adjusted net income available to
common stockholders(c) (Non-
GAAP) 188 907 0.21
--- --- ----
Preferred stock dividends 23 0.02
Earnings allocated to
participating securities 1 -
---
Total adjusted net income
attributable to Chesapeake(c)
(d) (Non-GAAP) $212 907 $0.23
==== === =====
(a) Weighted average
common and common
equivalent shares
outstanding for
GAAP and non-
GAAP purposes do
not include 208
million shares
that were
considered
antidilutive for
calculating
earnings per
share in
accordance with
GAAP.
(b) Due to our
valuation
allowance
position, no
income tax effect
from the
adjustments has
been included in
determining
adjusted net
income.
(c) Adjusted net
income and
adjusted earnings
per common share
are not measures
of financial
performance under
accounting
principles
generally
accepted in the
United States
(GAAP), and
should not be
considered as an
alternative to
net income
available to
common
stockholders or
earnings per
share. Adjusted
net income
available to
common
stockholders and
adjusted earnings
per share exclude
certain items
that management
believes affect
the comparability
of operating
results. The
company believes
these adjusted
financial
measures are a
useful adjunct to
earnings
calculated in
accordance with
GAAP because:
(i) Management uses adjusted net
income available to common
stockholders to evaluate the
company's operational trends
and performance relative to
other oil and natural gas
producing companies.
(ii) Adjusted net income available to
common stockholders is more
comparable to earnings
estimates provided by
securities analysts.
(iii) Items excluded generally are
one-time items or items whose
timing or amount cannot be
reasonably estimated.
Accordingly, any guidance
provided by the company
generally excludes information
regarding these types of items.
(d) Our presentation
of diluted
adjusted net
income (loss) per
share excludes
shares considered
antidilutive when
calculating
diluted earnings
per share in
accordance with
GAAP.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF ADJUSTED NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
(in millions, except per share data)
(unaudited)
THREE MONTHS ENDED: March 31, 2016
------------------- --------------
$ Shares(a) $/Share(b) (c)
--- --------- --------------
Net loss available to common
stockholders $(1,111) 668 $(1.66)
Adjustments:
Unrealized losses on commodity
derivatives 42 0.06
Unrealized gains on supply
contract derivatives (20) (0.03)
Provision for legal
contingencies 33 0.05
Impairment of oil and natural
gas properties 997 1.49
Impairments of fixed assets and
other 38 0.06
Net gains on sales of fixed
assets (4) (0.01)
Loss on sale of investment 10 0.01
Gains on purchases or exchanges
of debt (100) (0.14)
Income tax expense (benefit)(b) - -
Other 3 -
--- ---
Adjusted net loss available to
common stockholders(c) (Non-
GAAP) (112) 668 (0.17)
---- --- -----
Preferred stock dividends 43 0.06
--- ----
Total adjusted net loss
attributable to Chesapeake(c)
(d) (Non-GAAP) $(69) 668 $(0.11)
==== === ======
(a) Weighted average
common and common
equivalent shares
outstanding for
GAAP and non-
GAAP purposes do
not include 113
million shares
that were
considered
antidilutive for
calculating
earnings per
share in
accordance with
GAAP.
(b) Due to our
valuation
allowance
position, no
income tax effect
from the
adjustments has
been included in
determining
adjusted net
income.
(c) Adjusted net
income and
adjusted earnings
per common share
are not measures
of financial
performance under
accounting
principles
generally
accepted in the
United States
(GAAP), and
should not be
considered as an
alternative to
net income
available to
common
stockholders or
earnings per
share. Adjusted
net income
available to
common
stockholders and
adjusted earnings
per share exclude
certain items
that management
believes affect
the comparability
of operating
results. The
company believes
these adjusted
financial
measures are a
useful adjunct to
earnings
calculated in
accordance with
GAAP because:
(i) Management uses adjusted net
income available to common
stockholders to evaluate the
company's operational trends
and performance relative to
other oil and natural gas
producing companies.
(ii) Adjusted net income available to
common stockholders is more
comparable to earnings
estimates provided by
securities analysts.
(iii) Items excluded generally are
one-time items or items whose
timing or amount cannot be
reasonably estimated.
Accordingly, any guidance
provided by the company
generally excludes information
regarding these types of items.
(d) Our presentation
of diluted
adjusted net
income (loss) per
share excludes
shares considered
antidilutive when
calculating
diluted earnings
per share in
accordance with
GAAP.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF OPERATING CASH FLOW AND EBITDA
($ in millions)
(unaudited)
THREE MONTHS ENDED: March 31, 2017 March 31, 2016
------------------- -------------- --------------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $99 $(421)
Changes in assets and
liabilities (113) 684
---- ---
OPERATING CASH FLOW(a) $(14) $263
==== ====
THREE MONTHS ENDED: March 31, March 31,
2017 2016
--- ---- ----
NET INCOME (LOSS) $141 $(1,068)
Interest expense 95 62
Income tax expense 1 -
Depreciation and
amortization of other
assets 21 29
Oil, natural gas and NGL
depreciation, depletion and
amortization 197 263
--- ---
EBITDA(b) $455 $(714)
==== =====
THREE MONTHS ENDED: March 31, March 31,
2017 2016
--- ---- ----
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $99 $(421)
Changes in assets and
liabilities (113) 684
Interest expense, net of
unrealized gains (losses)
on derivatives 93 59
Gains (losses) on commodity
derivatives, net 322 181
Gains on supply contract
derivatives, net - 20
Cash (receipts) payments on
commodity and supply
contract derivative
settlements, net 34 (267)
Stock-based compensation (11) (12)
Provision for legal
contingencies 2 (33)
Impairment of oil and
natural gas properties - (997)
Impairments of fixed assets
and other 3 (33)
Net gains on sales of fixed
assets - 4
Investment activity - (10)
Gains (losses) on purchases
or exchanges of debt (6) 100
Other items 32 11
--- ---
EBITDA(b) $455 $(714)
==== =====
(a) Operating cash flow represents net cash
provided by operating activities before
changes in assets and liabilities.
Operating cash flow is presented because
management believes it is a useful
adjunct to net cash provided by operating
activities under GAAP. Operating cash
flow is widely accepted as a financial
indicator of an oil and natural gas
company's ability to generate cash that
is used to internally fund exploration
and development activities and to service
debt. This measure is widely used by
investors and rating agencies in the
valuation, comparison, rating and
investment recommendations of companies
within the oil and natural gas
exploration and production industry.
Operating cash flow is not a measure of
financial performance under GAAP and
should not be considered as an
alternative to cash flows from operating
activities as an indicator of cash flows,
or as a measure of liquidity. Operating
cash flow for the three months ended
March 31, 2017 includes $290 million paid
to assign an oil transportation agreement
to a third party and $103 million paid to
terminate future natural gas
transportation commitments.
(b) Ebitda represents net income before
interest expense, income taxes, and
depreciation, depletion and amortization
expense. Ebitda is presented as a
supplemental financial measurement in the
evaluation of our business. We believe
that it provides additional information
regarding our ability to meet our future
debt service, capital expenditures and
working capital requirements. This
measure is widely used by investors and
rating agencies in the valuation,
comparison, rating and investment
recommendations of companies. Ebitda is
also a financial measurement that, with
certain negotiated adjustments, is
reported to our lenders pursuant to our
bank credit agreements and is used in the
financial covenants in our bank credit
agreements. Ebitda is not a measure of
financial performance under GAAP.
Accordingly, it should not be considered
as a substitute for net income, income
from operations or cash flow provided by
operating activities prepared in
accordance with GAAP.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF ADJUSTED EBITDA
($ in millions)
(unaudited)
THREE MONTHS ENDED: March 31, March 31,
2017 2016
--- ---- ----
EBITDA $455 $(714)
Adjustments:
Unrealized gains on
commodity
derivatives (326) 42
Unrealized gains on
supply contract
derivatives - (20)
Provision for legal
contingencies (2) 33
Impairment of oil
and natural gas
properties - 997
Impairments of fixed
assets and other 391 38
Net (gains) losses
on sales of fixed
assets - (4)
Loss on sale of
investment - 10
(Gains) losses on
purchases or
exchanges of debt 7 (100)
Net income
attributable to
noncontrolling
interests (1) -
Other 1 -
--- ---
Adjusted EBITDA(a) $525 $282
==== ====
Adjusted ebitda
excludes certain
items that
management
believes affect
the comparability
of operating
results. The
company believes
these non-GAAP
financial
measures are a
useful adjunct to
ebitda because:
(a)
(i) Management uses adjusted ebitda
to evaluate the company's
operational trends and
performance relative to other
oil and natural gas producing
companies.
(ii) Adjusted ebitda is more
comparable to estimates
provided by securities
analysts.
(iii) Items excluded generally are
one-time items or items whose
timing or amount cannot be
reasonably estimated.
Accordingly, any guidance
provided by the company
generally excludes information
regarding these types of items.
Accordingly, adjusted EBITDA should not be considered as a substitute for net income, income from operations or cash flow provided by operating activities prepared in accordance with GAAP.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF PV-9 AND PV-10 TO STANDARDIZED MEASURE
($ in millions)
(unaudited)
PV-9 is a non-GAAP metric used in the determination of the value of collateral under Chesapeake's credit facility. PV-10 is a non-GAAP metric used by the industry, investors and analysts to estimate the present value, discounted at 10% per annum, of estimated future cash flows of the company's estimated proved reserves before income tax. The following table shows the reconciliation of PV-9 and PV-10 to the company's standardized measure of discounted future net cash flows, the most directly comparable GAAP measure, for the year ended December 31, 2016 and for the interim period ended March 31, 2017. Management believes that PV-9 provides useful information to investors regarding the company's collateral position and that PV-10 provides useful information to investors because it is widely used by professional analysts and sophisticated investors in evaluating oil and natural gas companies. Because there are many unique factors that can impact an individual company when estimating the amount of future income taxes to be paid, management believes the use of a pre-tax measure is valuable for evaluating the company. Neither PV-9 nor PV-10 should be considered as an alternative to the standardized measure of discounted future net cash flows as computed under GAAP. With respect to PV-9 and PV-10 calculated as of an interim date, it is not practical to calculate taxes for the related interim period because GAAP does not provide for disclosure of standardized measure on an interim basis.
PV-9 - March 31, 2017 @ NYMEX
Strip $9,237
Less: Change in discount factor
from 9 to 10 (503)
----
PV-10 - March 31, 2017 @ NYMEX
Strip 8,734
Less: Change in pricing assumption
from NYMEX Strip to SEC (2,281)
------
PV-10 - March 31, 2017 @ SEC 6,453
Less: Change in PV-10 from
12/31/16 to 3/31/2017 (2,048)
------
PV-10 - December 31, 2016 @ SEC 4,405
Less: Present value of future
income tax discounted at 10% (26)
Standardized measure of discounted
future cash flows - December 31,
2016 $4,379
======
CHESAPEAKE ENERGY CORPORATION
MANAGEMENT'S OUTLOOK AS OF MAY 3, 2017
Chesapeake periodically provides guidance on certain factors that affect the company's future financial performance. New information or changes from the company's February 14, 2017 Outlook are italicized bold below.
Year Ending
12/31/2017
----------
Adjusted Production Growth(a) 0% to 4%
Absolute Production
Liquids - mmbbls 52.5 - 55.0
Oil - mmbbls 33.5 - 35.0
NGL - mmbbls 19.0 - 20.0
Natural gas - bcf 870 - 900
Total absolute production - mmboe 197.5 - 205.0
Absolute daily rate - mboe 541 - 562
Estimated Realized Hedging Effects(b)
(based on 5/1/17 strip prices):
Oil - $/bbl $2.51
Natural gas - $/mcf ($0.16)
NGL - $/bbl $0.10
Estimated Basis to NYMEX Prices:
Oil - $/bbl $1.35 - $1.55
Natural gas - $/mcf $0.30 - $0.40
NGL - $/bbl $3.75 - $4.15
Operating Costs per Boe of Projected
Production:
Production expense $2.50 - $2.70
Gathering, processing and
transportation expenses $7.00 - $7.50
Oil - $/bbl $4.05 - $4.25
Natural Gas - $/mcf $1.25 - $1.35
NGL - $/bbl $8.10 - $8.50
Production taxes $0.40 - $0.50
General and administrative(c) $1.20 - $1.30
Stock-based compensation (noncash) $0.10 - $0.20
DD&A of natural gas and liquids assets $4.00 - $5.00
Depreciation of other assets $0.40 - $0.50
Interest expense(d) $1.85 - $1.95
Marketing, gathering and compression
net margin(e) ($80) - ($60)
Book Tax Rate 0%
Capital Expenditures ($ in millions)(f) $1,900 - $2,300
Capitalized Interest ($ in millions) $200
Total Capital Expenditures ($ in
millions) $2,100 - $2,500
(a) Based on 2016 production of 537
mboe per day, adjusted for 2016
and 2017 sales.
(b) Includes expected settlements for
commodity derivatives adjusted for
option premiums. For derivatives
closed early, settlements are
reflected in the period of
original contract expiration.
(c) Excludes expenses associated with
stock-based compensation.
(d) Excludes unrealized gains (losses)
on interest rate derivatives.
(e) Excludes non-cash amortization of
approximately $22 million related
to the buydown of a transportation
agreement.
(f) Includes capital expenditures for
drilling and completion,
leasehold, geological and
geophysical costs, rig termination
payments and other property and
plant and equipment. Excludes any
additional proved property
acquisitions.
Oil, Natural Gas and Natural Gas Liquids Hedging Activities
Chesapeake enters into commodity derivative transactions in order to mitigate a portion of its exposure to adverse changes in market prices. Please see the quarterly reports on Form 10-Q and annual reports on Form 10-K filed by Chesapeake with the SEC for detailed information about derivative instruments the company uses, its quarter-end derivative positions and accounting for oil, natural gas and natural gas liquids derivatives.
As of May 1, 2017, the company had downside protection, through open swaps, on a portion of its remaining 2017 oil production at an average price of $50.25 per bbl. The company had downside price protection, through open swaps and two-way collars, on a portion of its remaining 2017 natural gas production at an average price of $3.05 per mcf. Chesapeake also had downside price protection, through open swaps, on a portion of its remaining 2017 ethane production at an average price of $0.28 per gallon.
In addition, the company had downside protection, through open swaps and two-way collars, on a portion of its 2018 natural gas production at an average price of $3.12 per mcf and a portion of its 2018 oil production at an average price of $51.43 per bbl.
The company's crude oil hedging positions as of May 1, 2017 were as follows:
Open Crude Oil Swaps; Gains (Losses) from Closed
Crude Oil Trades
Open Swaps Avg. NYMEX Total Gains
from
Closed Trades
(mbbls) Price of
($ in millions)
Open Swaps
----------
Q2 2017 5,915 $50.12 $23
Q3 2017 5,612 $50.27 23
Q4 2017 5,612 $50.36 23
------- ----- ------ ---
Total 2017 17,139 $50.25 $69
========== ====== ====== ===
Total 2018 -
2022 1,825 $51.43 $(13)
============ ===== ====== ====
Crude Oil Net Written Call Options
Call Options Avg. NYMEX
(mbbls) Strike Price
------ ------------
Q2 2017 1,320 $83.50
Q3 2017 1,334 $83.50
Q4 2017 1,334 $83.50
------- ----- ------
Total 2017 3,988 $83.50
========== ===== ======
The company's natural gas hedging positions as of May 1, 2017 were as follows:
Open Natural Gas Swaps; Losses from Closed
Natural Gas Trades
Open Swaps Avg. NYMEX Total Losses
(bcf) Price of from Closed
Trades
($ in
millions)
Open Swaps
----------
Q2 2017 157 $2.96 $(1)
Q3 2017 158 $3.00 (2)
Q4 2017 164 $3.16 (3)
------- --- ----- ---
Total 2017 479 $3.04 $(6)
========== === ===== ===
Total 2018 -
2022 191 $3.15 $(69)
============ === ===== ====
Natural Gas Two-Way Collars
Open Collars (bcf) Avg. Avg.
NYMEX NYMEX
Bought Put Sold Call
Price Price
----- -----
Q4 2017 24 $3.25 $3.68
------- --- ----- -----
Total 2017 24 $3.25 $3.68
========== === ===== =====
Total 2018 47 $3.00 $3.25
========== === ===== =====
Natural Gas Net Written Call Options
Call Options Avg. NYMEX
(bcf) Strike Price
---- ------------
Q2 2017 12 $9.43
Q3 2017 12 $9.43
Q4 2017 12 $9.43
------- --- -----
Total 2017 36 $9.43
========== === =====
Total 2018 -
2020 66 $12.00
============ === ======
Natural Gas Basis Protection Swaps
Volume Avg. NYMEX
plus/(minus)
(bcf)
----
Q2 2017 5 $(0.46)
Q3 2017 6 $(0.46)
Q4 2017 6 $(0.46)
------- --- ------
Total 2017 17 $(0.46)
========== === ======
Total 2018 1 $(1.03)
========== === ======
The company's natural gas liquids hedging positions as of May 1, 2017 were as follows:
Open Ethane Swaps
Volume Avg. NYMEX
Price of Open
(mmgal) Swaps
------ -----
Q2 2017 27 $0.28
======= === =====
Total 2017 27 $0.28
========== === =====
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/chesapeake-energy-corporation-reports-2017-first-quarter-financial-and-operational-results-300451273.html
SOURCE Chesapeake Energy Corporation
