NEWFIELD EXPLORATION OKLAHOMA CITY, May 5, 2016 /PRNewswire/ -- Chesapeake Energy Corporation (NYSE:CHK) today reported financial and operational results for the 2016 first quarter. Highlights include:
-- Signed agreement to sell approximately 42,000 net acres prospective for
the STACK play in Oklahoma for approximately $470 million; includes
current production of 3,800 boe per day
-- 2016 first quarter production averaged approximately 672,400 boe per
day, an increase of 1% year over year, adjusted for asset sales
-- Improved 2016 first quarter cost performance leads to lower full-year
2016 production expense and GP&T expense guidance
-- Financial strategy remains focused on maximizing liquidity and liability
management; company reiterates target of $1.2 to $1.7 billion total
gross proceeds from asset divestitures by year-end
Doug Lawler, Chesapeake's Chief Executive Officer, commented, "Chesapeake is delivering on all four of the focus points for 2016 that we stated in February: maximizing liquidity, optimizing our portfolio, increasing cash flow and reducing debt. We are pleased this morning to announce approximately $500 million of incremental asset sales above the $700 million we announced in late February. The STACK acreage sale we are announcing today accelerates value from a portion of our undeveloped acreage that currently generates very little cash flow, giving us the ability to enhance current liquidity. This transaction contributes substantially to achieving our previously announced target of an incremental $500 million to $1 billion of asset sales by year-end. We anticipate subsequent divestitures during the second and third quarters.
"Our cash costs continue to decline, and we remain sharply focused on improving our margins through continued progress with our midstream and downstream partners. As a result, we have recognized incremental improvements in both our production expense and our total gathering, processing and transportation expenses and revised our 2016 guidance accordingly. Additionally, since January 1, 2016, we have reduced debt that matures or can be put to us in 2017 by approximately $282 million. Our recently amended revolving credit facility agreement gives us sufficient liquidity and capacity to pursue additional reductions of our near-term maturities as opportunities arise."
2016 First Quarter Results
For the 2016 first quarter, Chesapeake reported a net loss available to common stockholders of $964 million, or $1.44 per fully diluted share. The primary driver of the net loss was a noncash impairment of the carrying value of Chesapeake's oil and natural gas properties of approximately $853 million, largely resulting from decreases in the trailing 12-month average first-day-of-the-month oil and natural gas prices as of March 31, 2016, compared to December 31, 2015. Adjusting for items that are typically excluded by securities analysts, including the impairment discussed above, the 2016 first quarter adjusted net loss available to common stockholders was $120 million, or $0.10 per fully diluted share. Reconciliations of financial measures calculated in accordance with generally accepted accounting principles to adjusted measures that are typically calculated by securities analysts are provided on pages 10 - 12 of this release.
Chesapeake's 2016 first quarter revenues declined by 39% year over year, primarily due to a decrease in the average realized commodity prices received for its production. Revenue declines due to lower commodity prices were partially offset by improvements to the company's production expenses and general and administrative (G&A) expenses. Average daily production for the 2016 first quarter of approximately 672,400 barrels of oil equivalent (boe) increased 1%, adjusted for asset sales, and consisted of approximately 95,700 barrels (bbls) of oil, 3.036 billion cubic feet (bcf) of natural gas and 70,700 bbls of natural gas liquids (NGL).
Chesapeake's cash expenses continue to decline due to its focus on cost discipline. Average production expenses during the 2016 first quarter were $3.36 per boe, a decrease of 31% from the 2015 first quarter. G&A expenses (including stock-based compensation) during the 2016 first quarter were $0.79 per boe, a decrease of 13% from the 2015 first quarter. Sequentially, the company's 2016 first quarter production expenses per boe and G&A expenses per boe (including stock-based compensation) declined 7% and 23%, respectively, compared to the 2015 fourth quarter. As a result of the company's cost reductions, Chesapeake has lowered its full-year 2016 guidance for production expenses.
Capital Spending Overview
Chesapeake's total capital investments were approximately $365 million during the 2016 first quarter, compared to approximately $1.5 billion in the 2015 first quarter, as summarized in the table below. A summary of the company's guidance for 2016 is provided in the Outlook dated May 5, 2016, beginning on Page 13.
2016 2015 2015
Activity Comparison Q1 Q4 Q1
------------------- --- --- ---
Average operated rig count 8 14 54
Gross wells completed 57 85 261
Gross wells spud 41 66 244
Gross wells connected 80 100 262
===================== === === ===
Type of Cost ($ in millions)
Drilling and completion costs $281 $405 $1,300
Exploration costs and additions to other
PP&E 16 55 63
---------------------------------------- --- --- ---
Subtotal capital expenditures $297 $460 $1,363
Capitalized interest 68 88 123
Total capital expenditures $365 $548 $1,486
========================== ==== ==== ======
Balance Sheet and Liquidity
As of March 31, 2016, Chesapeake's debt principal balance was approximately $9.4 billion, including approximately $367 million of borrowings outstanding on the company's $4.0 billion revolving credit facility, compared to $9.7 billion as of December 31, 2015, and $11.5 billion as of March 31, 2015. Since January 1, 2016, the company retired its 3.25% Senior Notes due March 15, 2016, and has repurchased or exchanged approximately $282 million of debt due or putable in 2017 at an average discount of approximately 39%.
In April, Chesapeake amended its $4.0 billion revolving credit facility maturing in 2019 to reaffirm its borrowing base, restructure financial covenants and increase its ability to issue secured debt. Under the new amendment, Chesapeake agreed to pledge additional assets as collateral. As part of the amendment, the next scheduled borrowing base redetermination review has been postponed until June 2017. Letters of credit issued under the credit facility were approximately $619 million as of March 31, 2016, which included a $461 million supersedeas bond supporting the company's appeal of the judgment issued in 2015 with respect to the company's 2019 Notes litigation.
Asset Divestitures Update
In 2016, Chesapeake has closed or has under signed sales agreements approximately $1.2 billion in gross proceeds from asset divestitures, or approximately $950 million in net proceeds after certain related repurchases of Volumetric Production Payment (VPP) obligations are met. Transactions signed since February 2016 include the sale of a portion of the company's acreage and producing properties in its STACK play in northern Oklahoma for approximately $470 million to Newfield Exploration Company (NYSE: NFX). Included in the sale are approximately 42,000 net acres and 400 producing wells which are currently producing 3,800 boe per day (approximately 55% liquids), net to Chesapeake. Substantially all of the company's announced asset divestitures are expected to close by the end of the third quarter. For the expected $950 million in net proceeds currently closed or signed in 2016, the net impact to the company's production is projected to be a reduction of approximately 35,000 boe per day (approximately 60% natural gas).
Key Financial and Operational Results
The table below summarizes Chesapeake's key financial and operational results during the 2016 first quarter as compared to results in prior periods.
Three Months Ended
------------------
03/31/16 12/31/15 03/31/15
-------- -------- --------
Oil
equivalent
production
(in mmboe) 61 61 62
Oil
production
(in
mmbbls) 9 9 11
Average
realized
oil price
($/bbl)(a) 37.74 64.04 65.73
Natural gas
production
(in bcf) 276 268 264
Average
realized
natural
gas price
($/mcf)(a) 2.29 2.35 3.67
NGL
production
(in
mmbbls) 6 7 7
Average
realized
NGL price
($/bbl)(a) 11.44 14.07 18.40
Production
expenses
($/boe) (3.36) (3.62) (4.84)
Gathering,
processing
and
transportation
expenses
($/boe) (7.88) (11.34) (7.40)
Production
taxes
($/boe) (0.30) (0.19) (0.45)
General and
administrative
expenses
($/boe)(b) (0.66) (0.84) (0.72)
Stock-
based
compensation
($/boe) (0.13) (0.18) (0.19)
DD&A of oil
and
natural
gas
properties
($/boe) (4.43) (5.37) (11.08)
DD&A of
other
assets
($/boe) (0.48) (0.50) (0.57)
Interest
expenses
($/boe)(a) (0.98) (1.70) (0.98)
Marketing,
gathering
and
compression
net margin
($ in
millions)(c) 18 2 (25)
Operating
cash flow
($ in
millions)(d) 263 386 882
Operating
cash flow
($/boe) 4.29 6.35 14.29
Adjusted
ebitda ($
in
millions)(e) 282 298 928
Adjusted
ebitda
($/boe) 4.61 4.90 15.02
Net loss
available
to common
stockholders
($ in
millions) (964) (2,228) (3,782)
Earnings
(loss) per
share -
diluted
($) (1.44) (3.36) (5.72)
Adjusted
net income
(loss)
available
to common
stockholders
($ in
millions)(f) (120) (168) 42
Adjusted
earnings
(loss) per
share -
diluted
($) (0.10) (0.16) 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 $20 million, $5
million and a nominal amount of
unrealized gains on supply
contract derivatives for the
three months ended March 31,
2016, December 31, 2015 and March
31, 2015, respectively. Excludes
depreciation and amortization of
other assets.
(d) Defined as cash flow provided by
operating activities before
changes in assets and
liabilities.
(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 12.
(f) Defined as net income available to
common stockholders, as adjusted
to remove the effects of certain
items detailed on page 10.
2016 First Quarter Financial and Operational Results Conference Call Information
A conference call to discuss this release has been scheduled on Thursday, May 5, 2016, at 9:00 am EDT. The telephone number to access the conference call is 913-981-5571 or toll-free 888-211-7449. The passcode for the call is 8725419. 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 8725419. The conference call will also be webcast live 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.
Chesapeake Energy Corporation (NYSE:CHK) is the second-largest producer of natural gas and the 13th largest producer of oil and natural gas liquids in the United States. Headquartered in Oklahoma City, the company's operations are focused on discovering and developing its large and geographically diverse resource base of unconventional oil and natural gas assets onshore in the U.S. The company also owns oil and natural gas marketing and natural gas gathering and compression businesses. Further information is available at www.chk.com where Chesapeake routinely posts announcements, updates, events, investor information, presentations and news releases.
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 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 agreements), 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 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 or at all; the availability of cash flows from operations and other funds to finance reserve replacement costs or satisfy our debt obligations; a further 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 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 of our spin-off of Seventy Seven Energy Inc. (SSE) in the event of a bankruptcy of SSE; an interruption in operations at our headquarters due to a catastrophic event; the continuation of suspended dividend payments on our common stock and preferred 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.
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in millions, except per share data)
(unaudited)
Three Months Ended
March 31,
---------
2016 2015
---- ----
REVENUES:
Oil, natural gas and NGL $993 $1,543
Marketing, gathering and compression 960 1,675
Total Revenues 1,953 3,218
----- -----
OPERATING EXPENSES:
Oil, natural gas and NGL production 206 299
Oil, natural gas and NGL gathering,
processing and transportation 482 458
Production taxes 18 28
Marketing, gathering and compression 942 1,700
General and administrative 48 56
Restructuring and other termination
costs - (10)
Provision for legal contingencies 22 25
Oil, natural gas and NGL depreciation,
depletion and amortization 271 684
Depreciation and amortization of other
assets 29 35
Impairment of oil and natural gas
properties 853 4,976
Impairments of fixed assets and other 38 4
Net (gains) losses on sales of fixed
assets (4) 3
--- ---
Total Operating Expenses 2,905 8,258
----- -----
LOSS FROM OPERATIONS (952) (5,040)
---- ------
OTHER INCOME (EXPENSE):
Interest expense (62) (51)
Losses on investments - (7)
Loss on sale of investment (10) -
Gains on purchases or exchanges of
debt 100 -
Other income 3 6
--- ---
Total Other Income (Expense) 31 (52)
--- ---
LOSS BEFORE INCOME TAXES (921) (5,092)
---- ------
INCOME TAX BENEFIT:
Current income taxes - -
Deferred income taxes - (1,372)
--- ------
Total Income Tax Benefit - (1,372)
--- ------
NET LOSS (921) (3,720)
Net income attributable to
noncontrolling interests - (19)
--- ---
NET LOSS ATTRIBUTABLE TO CHESAPEAKE (921) (3,739)
---- ------
Preferred stock dividends (43) (43)
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS $(964) $(3,782)
===== =======
LOSS PER COMMON SHARE:
Basic $(1.44) $(5.72)
====== ======
Diluted $(1.44) $(5.72)
====== ======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (in
millions):
Basic 668 661
=== ===
Diluted 668 661
=== ===
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
(unaudited)
March 31, 2016 December 31,
2015
-------------- -------------
Cash and
cash
equivalents $16 $825
Other
current
assets 1,476 1,655
Total
Current
Assets 1,492 2,480
----- -----
Property
and
equipment,
(net) 13,291 14,298
Other
assets 574 536
--- ---
Total
Assets $15,357 $17,314
======= =======
Current
liabilities $2,833 $3,685
Long-term
debt, net 10,062 10,311
Other
long-
term
liabilities 891 921
Total
Liabilities 13,786 14,917
------ ------
Preferred
stock 3,036 3,062
Noncontrolling
interests 260 259
Common
stock and
other
stockholders'
equity (1,725) (924)
------ ----
Total
Equity 1,571 2,397
----- -----
Total
Liabilities
and
Equity $15,357 $17,314
======= =======
Common
shares
outstanding
(in
millions) 683 663
=== ===
Principal
amount of
debt
outstanding $9,425 $9,706
====== ======
CHESAPEAKE ENERGY CORPORATION
SUPPLEMENTAL DATA - OIL, NATURAL GAS AND NGL PRODUCTION, SALES AND INTEREST EXPENSE
(unaudited)
Three Months Ended
March 31,
---------
2016 2015
---- ----
Net
Production:
Oil
(mmbbl) 9 11
Natural
gas (bcf) 276 264
NGL
(mmbbl) 6 7
Oil
equivalent
(mmboe) 61 62
Oil,
natural
gas and
NGL Sales
($ in
millions):
Oil sales $255 $486
Oil
derivatives
-
realized
gains
(losses)(a) 73 235
Oil
derivatives
-
unrealized
gains
(losses)(a) (72) (110)
Total Oil
Sales 256 611
--- ---
Natural
gas sales 483 770
Natural
gas
derivatives
-
realized
gains
(losses)(a) 150 200
Natural
gas
derivatives
-
unrealized
gains
(losses)(a) 30 (164)
--- ----
Total
Natural
Gas Sales 663 806
--- ---
NGL sales 74 126
Total NGL
Sales 74 126
---
Total Oil,
Natural
Gas and
NGL Sales $993 $1,543
==== ======
Average
Sales
Price -
excluding
gains
(losses)
on
derivatives:
Oil ($ per
bbl) $29.34 $44.33
Natural
gas ($
per mcf) $1.75 $2.92
NGL ($ per
bbl) $11.44 $18.40
Oil
equivalent
($ per
boe) $13.28 $22.36
Average
Sales
Price -
including
realized
gains
(losses)
on
derivatives:
Oil ($ per
bbl) $37.74 $65.73
Natural
gas ($
per mcf) $2.29 $3.67
NGL ($ per
bbl) $11.44 $18.40
Oil
equivalent
($ per
boe) $16.93 $29.40
Interest
Expense
($ in
millions):
Interest(b) $62 $62
Interest
rate
derivatives
-
realized
(gains)
losses(c) (3) (1)
Interest
rate
derivatives
-
unrealized
(gains)
losses(c) 3 (10)
Total
Interest
Expense $62 $51
=== ===
(a) Realized gains and losses include
the following items: (i)
settlements of nondesignated
derivatives related to current
period production revenues, (ii)
prior period settlements for option
premiums and for early-terminated
derivatives originally scheduled to
settle against current period
production revenues, and (iii)
gains and losses related to de-
designated cash flow hedges
originally designated to settle
against current period production
revenues. Unrealized gains and
losses include the change in fair
value of open derivatives scheduled
to settle against future period
production revenues offset by
amounts reclassified as realized
gains and losses during the period.
Although we no longer designate
our derivatives as cash flow hedges
for accounting purposes, we believe
these definitions are useful to
management and investors in
determining the effectiveness of
our price risk management program.
(b) Net of amounts capitalized.
(c) Realized (gains) losses include
settlements related to the current
period interest accrual and the
effect of (gains) losses on early
termination trades. Unrealized
(gains) losses include changes in
the fair value of open interest
rate derivatives offset by amounts
reclassified to realized (gains)
losses during the period.
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED CASH FLOW DATA
($ in millions)
(unaudited)
THREE MONTHS
ENDED: March 31, March 31,
2016 2015
--- ---- ----
Beginning cash $825 $4,108
---- ------
Net cash provided
by (used in)
operating
activities (421) 423
----
Cash flows from
investing
activities:
Drilling and
completion
costs(a) (265) (1,306)
Acquisitions of
proved and
unproved
properties(b) (67) (128)
Proceeds from
divestitures of
proved and
unproved
properties 62 21
Additions to
other property
and equipment(c) (10) (58)
Proceeds from
sales of other
property and
equipment 9 2
Other (2) (3)
--- ---
Net cash used in
investing
activities (273) (1,472)
---- ------
Net cash used in
financing
activities (115) (152)
---- ----
Change in cash
and cash
equivalents (809) (1,201)
---- ------
Ending cash $16 $2,907
=== ======
(a) Includes capitalized interest of
$2 million and $11 million for
the three months ended March
31, 2016 and 2015,
respectively.
(b) Includes capitalized interest of
$64 million and $109 million
for the three months ended
March 31, 2016 and 2015,
respectively.
(c) Includes capitalized interest of
$1 million and $1 million for
the three months ended March
31, 2016 and 2015,
respectively.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF ADJUSTED NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
($ in millions, except per share data)
(unaudited)
THREE MONTHS ENDED: March 31, December 31, March 31,
2016 2015 2015
--- ---- ---- ----
Net loss available to common stockholders $(964) $(2,228) $(3,782)
Weighted average common and common
equivalent shares outstanding (a) 668 663 661
Loss per common share (diluted) (1.44) (3.36) (5.72)
Adjustments, net of tax:
Unrealized losses on commodity and interest
rate derivatives 45 41 192
Unrealized gains on supply contract
derivatives (20) (4) -
Restructuring and other termination costs - (2) (7)
Provision for legal contingencies 22 (5) 18
Impairment of oil and natural gas properties 853 2,183 3,635
Impairments of fixed assets and other 38 21 3
Net (gains) losses on sales of fixed assets (4) 1 2
Impairment of investment - 41 -
Loss on sale of investment 10 - -
Gains on purchases or exchanges of debt (100) (215) -
Tax rate adjustment - - (17)
Other - (1) (2)
Adjusted net income (loss) available to
common stockholders(b) $(120) $(168) $42
----- ----- ---
Preferred stock dividends 43 43 43
--- --- ---
Total adjusted net income (loss)
attributable to Chesapeake $(77) $(125) $85
==== ===== ===
Weighted average fully diluted shares
outstanding (in millions)(c) 781 777 776
Adjusted earnings (loss) per share assuming
dilution(b) $(0.10) $(0.16) $0.11
(a) Weighted average
common and common
equivalent shares
outstanding do
not include
shares that were
considered
antidilutive for
calculating
earnings per
share in
accordance with
GAAP.
(b) Adjusted net
income and
adjusted earnings
per share
assuming dilution
are not measures
of financial
performance under
accounting
principles
generally
accepted in the
United States
(GAAP), and
should not be
considered as an
alternative to
net income
available to
common
stockholders or
diluted earnings
per share.
Adjusted net
income available
to common
stockholders and
adjusted earnings
per share
assuming dilution
exclude certain
items that
management
believes affect
the comparability
of operating
results. The
company believes
these adjusted
financial
measures are a
useful adjunct to
earnings
calculated in
accordance with
GAAP because:
(i) Management uses adjusted net
income available to common
stockholders to evaluate the
company's operational trends
and performance relative to
other oil and natural gas
producing companies.
(ii) Adjusted net income available to
common stockholders is more
comparable to earnings
estimates provided by
securities analysts.
(iii) Items excluded generally are
one-time items or items whose
timing or amount cannot be
reasonably estimated.
Accordingly, any guidance
provided by the company
generally excludes information
regarding these types of items.
(c) Weighted average
fully diluted
shares
outstanding
include shares
that were
considered
antidilutive for
calculating
earnings per
share in
accordance with
GAAP.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF OPERATING CASH FLOW AND EBITDA
($ in millions)
(unaudited)
THREE MONTHS ENDED: March 31, 2016 December 31,
2015 March 31, 2015
------------------- -------------- ------------- --------------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $(421) $179 $423
Changes in assets and
liabilities 684 207 459
--- --- ---
OPERATING CASH FLOW(a) $263 $386 $882
==== ==== ====
THREE MONTHS ENDED: March 31, December 31, March 31,
2016 2015 2015
--- ---- ---- ----
NET LOSS $(921) $(2,185) $(3,720)
Interest expense 62 107 51
Income tax benefit - (649) (1,372)
Depreciation and
amortization of other
assets 29 30 35
Oil, natural gas and NGL
depreciation, depletion
and amortization 271 326 684
--- --- ---
EBITDA(b) $(559) $(2,371) $(4,322)
===== ======= =======
THREE MONTHS ENDED: March 31, December 31, March 31,
2016 2015 2015
--- ---- ---- ----
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $(421) $179 $423
Changes in assets and
liabilities 684 207 459
Interest expense, net of
unrealized gains (losses)
on derivatives 59 104 61
Gains on commodity
derivatives, net 181 284 161
Gains on supply contract
derivative, net 20 5 -
Cash receipts on commodity
derivative settlements,
net (267) (273) (413)
Stock-based compensation (12) (17) (23)
Restructuring and other
termination costs - 3 10
Provision for legal
contingencies (22) 19 (25)
Impairment of oil and
natural gas properties (853) (2,831) (4,976)
Impairments of fixed assets
and other (33) (16) (2)
Net gains (losses) on sales
of fixed assets 4 (1) (3)
Investment activity (10) (92) (7)
Gains on purchases or
exchanges of debt 100 304 -
Other items 11 (246) 13
--- ---- ---
EBITDA(b) $(559) $(2,371) $(4,322)
===== ======= =======
(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,
investing or financing activities as an
indicator of cash flows, or as a measure
of liquidity.
(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, December 31, March 31,
2016 2015 2015
--- ---- ---- ----
EBITDA $(559) $(2,371) $(4,322)
Adjustments:
Unrealized losses on commodity
derivatives 42 51 274
Unrealized gains on supply
contract derivatives (20) (5) -
Restructuring and other
termination costs - (3) (10)
Provision for legal
contingencies 22 (6) 25
Impairment of oil and natural
gas properties 853 2,831 4,976
Impairments of fixed assets and
other 38 27 4
Net (gains) losses on sales of
fixed assets (4) 1 3
Impairment of investment - 53 -
Loss on sale of investment 10 - -
Gains on purchases or exchanges
of debt (100) (279) -
Net income attributable to
noncontrolling interests - - (19)
Other - (1) (3)
--- --- ---
Adjusted EBITDA(a) $282 $298 $928
==== ==== ====
(a) 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:
(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
MANAGEMENT'S OUTLOOK AS OF MAY 5, 2016
Chesapeake periodically provides guidance on certain factors that
affect the company's future financial performance. Changes from the
company's February 24, 2016 Outlook are italicized bold below.
Year Ending
12/31/2016
----------
Adjusted Production Growth(a) (5%) to 0%
Absolute Production
Liquids - mmbbls 55 - 59
Oil - mmbbls 34 - 36
NGL - mmbbls 21 - 23
Natural gas - bcf 1,000 - 1,040
Total absolute production - mmboe 222 - 232
Absolute daily rate - mboe 605 - 635
Estimated Realized Hedging Effects(b) (based on 5/3/16 strip
prices):
Oil - $/bbl $3.63
Natural gas - $/mcf $0.25
NGL - $/bbl ($0.30)
Estimated Basis to NYMEX Prices:
Oil - $/bbl $2.35 - $2.55
Natural gas - $/mcf $0.30 - $0.40
NGL - $/bbl $4.95 - $5.20
Operating Costs per Boe of Projected Production:
Production expense $3.40 - $3.60
Gathering, processing and
transportation expenses $7.60 - $8.10
Oil - $/bbl $3.75 - $3.95
Natural Gas(c) - $/mcf $1.40 - $1.50
NGL - $/bbl $7.60 - $7.85
Production taxes $0.35 - $0.45
General and administrative(d) $0.60 - $0.70
Stock-based compensation (noncash) $0.10 - $0.20
DD&A of natural gas and liquids assets $3.50 - $4.50
Depreciation of other assets $0.50 - $0.60
Interest expense(e) $1.05 - $1.15
Marketing, gathering and compression
net margin(f) ($20) - ($40)
Book Tax Rate 0%
Capital Expenditures ($ in millions)(g) $1,000 - $1,500
Capitalized Interest ($ in millions) $260
Total Capital Expenditures ($ in
millions) $1,260 - $1,760
(a) Based on 2015 production of 623
mboe per day, adjusted for 2015
and 2016 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 a 2016 fourth quarter
minimum volume commitment (MVC)
shortfall estimate of
approximately $165 to $175
million.
(d) Excludes expenses associated with
stock-based compensation.
(e) Excludes unrealized gains (losses)
on interest rate derivatives.
(f) Includes revenue and operating
expenses. Excludes depreciation
and amortization of other assets
and unrealized gains (losses) on
supply contract derivatives.
(g) Includes capital expenditures for
drilling and completion,
leasehold, geological and
geophysical costs, rig termination
payments and other property and
plant and equipment and excludes
approximately $245 million for the
expected repurchase of overriding
royalty interests associated with
the expected sale of certain of
the company's properties.
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 3, 2016, the company had downside protection, through open swaps, on a portion of its remaining 2016 oil production at an average price of $46.32 per bbl. The company had downside price protection, through open swaps, on a portion of its remaining 2016 natural gas production at an average price of $2.71 per mcf. Chesapeake also had downside price protection, through open swaps, on a portion of its remaining 2016 ethane and propane production at an average price of $0.17 per gallon and $0.46 per gallon, respectively.
The company's crude oil hedging positions as of May 3, 2016 were as follows:
Open Crude Oil Swaps; Gains from Closed
Crude Oil Trades and Call Option Premiums
Open Swaps Avg. NYMEX Total
Gains
from
Closed
Trades
(mbbls) Price of
and
Premiums
for
Open Swaps
Call
Options
($ in
millions)
----------
Q2 2016 6,279 $45.86 $9
Q3 2016 5,980 $46.31 10
Q4 2016 5,980 $46.80 10
Total 2016 (a) 18,239 $46.32 $29
============= ====== ====== ===
Total 2017 -
2022 2,920 $42.53 $78
============ ===== ====== ===
(a) Certain hedging arrangements
include a sold option to extend
at an average price of $53.67 per
bbl covering 2.2 mmbbls in 2016.
Sold options are included with
net written call options.
Crude Oil Net Written Call Options
Call Options Avg. NYMEX
(mbbls) Strike
Price
------ -------
Q2 2016 3,451 $87.25
Q3 2016 3,489 $87.25
Q4 2016 3,488 $87.25
Total 2016 10,428 $87.25
========== ====== ======
Total 2017 5,293 $83.50
========== ===== ======
The company's natural gas hedging positions as of May 3, 2016 were as follows:
Open Natural Gas Swaps; Gains (Losses) from Closed
Natural Gas Trades and Call Option Premiums
Open Swaps Avg. NYMEX Total
Losses
(bcf) Price of from
Closed
Trades
Open Swaps and
Premiums
for
Call
Options
($ in
millions)
----------
Q2 2016 174 $2.65 $(26)
Q3 2016 179 $2.69 (26)
Q4 2016 123 $2.84 (28)
Total 2016 (a) 476 $2.71 $(80)
============= === ===== ====
Total 2017 -
2022 73 $2.92 $(78)
============ === ===== ====
(a) Certain hedging arrangements
include a sold option to extend
at an average price of $2.80 per
mmbtu covering 77 bcf in 2016.
Sold options are included with
net written call options.
Natural Gas Net Written Call Options
Call Options Avg. NYMEX
(bcf) Strike Price
---- ------------
Q2 2016 45 $5.27
Q3 2016 45 $5.27
Q4 2016 46 $5.27
Total 2016 136 $5.27
========== === =====
Total 2017 -
2022 114 $10.92
============ === ======
Natural Gas Basis Protection Swaps
Volume Avg. NYMEX
plus/(minus)
(bcf)
----
Q2 2016 10 $(0.63)
Q3 2016 12 $(0.66)
Q4 2016 8 $(0.58)
Total 2016 30 $(0.63)
========== === ======
Total 2017 -
2022 24 $(0.48)
============ === ======
The company's natural gas liquids hedging positions as of May 3, 2016 were as follows:
Open Ethane Swaps
Volume Avg. NYMEX
Price of
Open
(mmgal) Swaps
------ -----
Q2 2016 57 $0.17
Q3 2016 58 $0.17
Q4 2016 20 $0.17
Total 2016 135 $0.17
========== === =====
Open Propane Swaps
Volume Avg. NYMEX
Price of
Open
(mmgal) Swaps
------ -----
Q2 2016 50 $0.46
Q3 2016 50 $0.46
Q4 2016 17 $0.46
Total 2016 117 $0.46
========== === =====
INVESTOR CONTACT: MEDIA CONTACT:
Brad Sylvester, CFA Gordon Pennoyer
(405) 935-8870 (405) 935-8878
ir@chk.com media@chk.com
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/chesapeake-energy-corporation-reports-2016-first-quarter-financial-and-operational-results-300263575.html
SOURCE Chesapeake Energy Corporation
