TOTALENERGIES SE OKLAHOMA CITY, Feb. 23, 2017 /PRNewswire/ -- Chesapeake Energy Corporation (NYSE: CHK) today reported financial and operational results for the 2016 full year and fourth quarter plus other recent developments. Highlights include:
-- Average 2016 production of 635,400 boe per day, comparable to 2015
levels, adjusted for asset sales
-- Total oil and natural gas proved reserves of approximately 1.7 billion
barrels of oil equivalent (bboe), a 14% increase compared to 2015 levels
-- Replaced 249% of production through extensions and discoveries, compared
to 93% in 2015 (excluding reserve revisions)
-- Reduced production expenses by approximately $336 million, or 28% per
boe of production, compared to 2015
-- Reduced gathering, processing and transportation expenses by
approximately $264 million, or 7% per boe of production, compared to
2015
-- Improved financial flexibility and reduced leverage driven by noncore
asset sales, refinancings, open market repurchases and exchanges of near
and mid-term debt maturities as well as preferred stock
-- Enhanced operating flexibility through reductions of future midstream
commitments
Doug Lawler, Chesapeake's Chief Executive Officer, commented, "During 2016, we made significant progress in improving our capital efficiency, decreasing cash costs and future midstream commitments while improving our liquidity and leverage profile, which resulted in a much stronger foundation for Chesapeake going forward. In 2017, we are capitalizing on these improvements across our cost structure to increase shareholder returns from our high-quality, diversified oil and natural gas portfolio. Our increase in activity over 2016 levels positions Chesapeake to deliver increased profitability and long-term value for our shareholders."
2016 Full Year Results
For the 2016 full year, Chesapeake's revenues declined by 38% from the 2015 full year due to a decrease in the average realized commodity prices received for its oil and natural gas production, lower production volumes, increased unrealized hedging losses and a decrease in the volumes sold and prices received by the company's marketing affiliate on behalf of third-party producers. Average daily production for the 2016 full year of approximately 635,400 barrels of oil equivalent (boe) consisted of approximately 90,800 barrels (bbls) of oil, 2.867 billion cubic feet (bcf) of natural gas and 66,700 bbls of natural gas liquids (NGL). During 2016, Chesapeake divested properties with average daily production of approximately 73,500 boe.
Average production expenses during the 2016 full year were $3.05 per boe, while G&A expenses (including stock-based compensation) during the 2016 full year were $1.03 per boe. Combined production and G&A expenses (including stock-based compensation) during the 2016 full year were $4.08 per boe, a decrease of 21% from the 2015 full year. Gathering, processing and transportation expenses during the 2016 full year were $7.98 per boe, a decrease of 7% from the 2015 full year. A summary of the company's production and operating expense guidance for 2017 is provided in the Outlook dated February 23, 2017, beginning on page 21.
Chesapeake reported a net loss available to common stockholders of $4.881 billion, or $6.39 per share, while the company's ebitda for the 2016 full year was a loss of $3.142 billion. The primary drivers of the net loss were noncash impairments of the carrying value of Chesapeake's oil and natural gas properties totaling $2.520 billion, largely resulting from decreases in the trailing 12-month average first-day-of-the-month oil and natural gas prices used in the company's impairment calculations, Barnett Shale exit costs of approximately $645 million and unrealized hedging losses of $818 million as prices marginally recovered. Adjusting for these and other items that are typically excluded by securities analysts, the 2016 full year adjusted net loss available to common stockholders was $138 million, or $0.05 per common share, while the company's adjusted ebitda was $1.339 billion in the 2016 full year. Reconciliations of financial measures calculated in accordance with generally accepted accounting principles (GAAP) to non-GAAP measures are provided on pages 13 - 19 of this release.
2016 Fourth Quarter Results
For the 2016 fourth quarter, Chesapeake's revenues declined by 24% year over year due to a decrease in the average realized commodity prices for its oil production, lower production volumes and increased unrealized hedging losses. Average daily production for the 2016 fourth quarter of approximately 574,500 barrels of oil equivalent (boe) consisted of approximately 90,400 bbls of oil, 2.562 bcf of natural gas and 57,100 bbls of NGL.
Average production expenses during the 2016 fourth quarter were $2.98 per boe, while G&A expenses (including stock-based compensation) during the 2016 fourth quarter were $1.28 per boe. Combined production and G&A expenses (including stock-based compensation) during the 2016 fourth quarter were $4.26 per boe, a decrease of 8% year over year. Gathering, processing and transportation expenses during the 2016 fourth quarter were $7.92 per boe, a decrease of 30% year over year, primarily due to minimum volume commitment shortfall payments accrued in the 2015 fourth quarter for our Barnett Shale operating area.
Chesapeake reported a net loss available to common stockholders of $741 million, or $0.84 per share, while the company's ebitda for the 2016 fourth quarter was a loss of $198 million. The primary drivers of the net loss were $395 million in unrealized losses on the company's oil and natural gas commodity derivatives and the loss on exchange of preferred stock of $428 million which represents the fair value of the additional shares of common stock issued in the exchange over the shares that would have been issuable pursuant to the original conversion terms. Adjusting for these and other items that are typically excluded by securities analysts, the 2016 fourth quarter adjusted net income available to common stockholders was $93 million, or $0.07 per common share, while the company's adjusted ebitda was $385 million in the 2016 fourth quarter. Reconciliations of financial measures calculated in accordance with GAAP to non-GAAP measures are provided on pages 13 - 19 of this release.
Capital Spending Overview
Chesapeake's total capital investments were approximately $1.7 billion during the 2016 full year, compared to approximately $3.6 billion in the 2015 full year. A summary of the company's 2016 and 2015 capital expenditures as well as the current 2017 guidance is provided in the table below.
2015 2016 2017
Operated activity
comparison Q4 FY Q4 FY Outlook
----------------- --- --- --- --- -------
Average rig count 14 28 12 10 16 - 18
Gross wells spud 66 499 60 213 380 - 440
Gross wells completed 85 547 82 365 420 - 485
Gross wells connected 100 650 110 428 415 - 480
===================== === === === === =========
Type of cost ($ in
millions)
Drilling and completion
costs $405 $2,959 $365 $1,316
Exploration costs,
leasehold and additions to
other PP&E 55 231 38 130
--------------------------- --- --- --- ---
Subtotal capital
expenditures $460 $3,190 $403 $1,446 $1,700 - $2,300
Capitalized interest 88 424 60 251 200
Total capital expenditures $548 $3,614 $463 $1,697 $1,900 - $2,500
========================== ==== ====== ==== ====== ===============
Balance Sheet and Liquidity
As of December 31, 2016, Chesapeake's debt principal balance was approximately $10.0 billion, compared to $9.7 billion as of December 31, 2015, with approximately $882 million cash on hand. Subsequent to December 31, 2016, Chesapeake reduced its debt principal balance by approximately $901 million through the following actions:
-- repayment upon maturity of $258 million of our 6.25% Euro-denominated
senior notes due January 2017;
-- retirement of approximately $287 million of principal amount of our
outstanding contingent convertible senior notes and $2 million of
non-convertible senior notes for an aggregate of $286 million pursuant
to tender offers;
-- redemption and retirement of $133 million remaining principal balance of
our outstanding 6.5% Senior Notes due 2017; and
-- open market repurchases of approximately $221 million principal amount
of our outstanding unsecured senior notes for $224 million.
Following the 2017 reductions in the principal balance of the company's outstanding debt, Chesapeake has approximately $9.1 billion in outstanding debt, with no outstanding borrowings on its revolving credit facility. Since December 31, 2015, Chesapeake has reduced the principal amount of debt due or that could be put to the company in 2017 and 2018 by approximately $2.7 billion, or 97%, from $2.770 billion to $77 million.
Also in January 2017, the company completed private exchanges of an aggregate of approximately 10 million shares of its common stock for (i) 150,948 shares of 5.00% Cumulative Convertible Preferred Stock (Series 2005B), (ii) 72,600 shares of 5.75% Cumulative Convertible Preferred Stock and (iii) 12,500 shares of 5.75% Cumulative Convertible Preferred Stock (Series A), with an aggregate liquidation value of approximately $100 million. On February 15, 2017, Chesapeake reinstated the payment of dividends on each series of its outstanding convertible preferred stock and paid our dividends in arrears.
Following the debt principal reductions, reinstatement of preferred dividends inclusive of payment of dividends in arrears and reductions in midstream obligations detailed below, Chesapeake expects to end February with approximately $300 million in cash on hand.
Asset Acquisitions and Divestitures Update
In the 2016 third quarter, the company entered into an agreement to convey its interests in the Barnett Shale operating area located in north central Texas to Total S.A. (NYSE: TOT) and simultaneously terminate a portion of future gas gathering and transportation commitments associated with this asset. Chesapeake received approximately $218 million in proceeds for these assets, which closed on October 31, 2016.
Also in the 2016 third quarter, the company sold the majority of its upstream and midstream assets in the Devonian Shale located in West Virginia, Kentucky, and Virginia. In connection with this divestiture, the company repurchased one of its two remaining volumetric production payment (VPP) transactions, resulting in nominal net proceeds. Chesapeake retained the deeper drilling rights in the area after this disposition, which closed on December 21, 2016.
In the 2017 first quarter, Chesapeake closed on two separate sales transactions of acreage and producing properties in its Haynesville Shale operating area in northern Louisiana for gross proceeds of approximately $915 million. Included in the sale were approximately 119,500 net acres and approximately 576 wells producing 80 million cubic feet of gas (mmcf) per day. Chesapeake continues to focus on select asset divestitures and is planning to sell additional noncore and non-operated properties in 2017.
Midstream Update
In the 2016 fourth quarter, Chesapeake signed a definitive contract to restructure its natural gas gathering and service agreement in its Powder River Basin operating area with Williams Partners L.P. and Crestwood Equity Partners L.P. The restructured services replaced the current cost-of-service arrangement and improved economics that support increased development across an expanded area of dedication in the region and became effective January 1, 2017, for a 20-year term.
Chesapeake continues to work to reduce and optimize its gathering, processing and transportation commitments across all of its operating areas. In February 2017, the company successfully reduced crude transportation commitments related to the Seaway Pipeline by assigning these commitments to a separate third party, effective April 1, 2017. These commitments totaled approximately $450 million and Chesapeake paid approximately $290 million to assign the contract. As a result, the company expects its marketing margin to improve significantly in 2018 over 2017 expected levels and return to profitability after 2018. In addition, the company utilized $100 million of the proceeds from the divestiture of its assets in the Barnett Shale to buy down approximately $110 million of its related natural gas transportation obligations. This new agreement is expected to be effective March 1, 2017.
Operations Update
Chesapeake's average daily production for the 2016 fourth quarter was approximately 574,500 boe and is further detailed in the table below. For the 2017 first quarter, the company expects its average daily production to range between 515,000 and 535,000 boe, of which average daily oil production is expected to range between 80,000 and 85,000 barrels per day, which is consistent with prior guidance. Chesapeake's projected production volumes and capital expenditure program are subject to capital allocation decisions throughout the year and can be adjusted based on prevailing market conditions.
2016 2016 2015
Operating area net production
(mboe/day) Q4 Q3 Q4
----------------------------- ---
Eagle Ford 104 101 97
Haynesville 135 139 102
Marcellus 134 134 130
Utica 108 127 140
Mid-Continent 53 55 94
Powder River Basin 12 14 20
Barnett 19 59 70
Other 10 9 8
Total production 575 638 661
================ === === ===
Chesapeake is currently utilizing 17 drilling rigs across its operating areas, six of which are located in the Eagle Ford Shale, four in the Mid-Continent area, three in the Haynesville Shale, two in the Powder River Basin and two in Northeast Appalachia. Chesapeake plans to utilize an average of 17 rigs throughout the year and intends to spud and place in production approximately 400 and 450 gross operated wells, respectively, in 2017.
Key Financial and Operational Results
The table below summarizes Chesapeake's key financial and operational results during the 2016 fourth quarter and full year as compared to results in prior periods.
Three Months Ended Full Year Ended
12/31/16 12/31/15 12/31/16 12/31/15
-------- -------- -------- --------
Oil equivalent
production (in
mmboe) 53 61 233 248
Oil production (in
mmbbls) 8 9 33 42
Average realized
oil price
($/bbl)(a) 47.37 64.04 43.58 66.91
Natural gas
production (in
bcf) 236 268 1,049 1,070
Average realized
natural gas price
($/mcf)(a) 2.41 2.35 2.20 2.72
NGL production (in
mmbbls) 5 7 24 28
Average realized
NGL price
($/bbl)(a) 20.90 14.07 14.43 14.06
Production expenses
($/boe) (2.98) (3.62) (3.05) (4.22)
Gathering,
processing and
transportation
expenses ($/boe) (7.92) (11.34) (7.98) (8.55)
Oil - ($/bbl) (3.87) (3.53) (3.61) (3.38)
Natural Gas -
($/mcf) (1.46) (2.26) (1.47) (1.66)
NGL - ($/bbl) (8.05) (7.47) (7.83) (7.37)
Production taxes
($/boe) (0.38) (0.19) (0.32) (0.40)
General and
administrative
expenses
($/boe)(b) (1.11) (0.84) (0.87) (0.77)
Stock-based
compensation
($/boe) (0.17) (0.18) (0.16) (0.18)
DD&A of oil and
natural gas
properties ($/boe) (4.05) (5.37) (4.31) (8.47)
DD&A of other
assets ($/boe) (0.40) (0.50) (0.45) (0.53)
Interest expenses
($/boe)(a) (1.61) (1.70) (1.18) (1.30)
Marketing,
gathering and
compression net
margin ($ in
millions)(c) (25) 2 (194) 243
Operating cash flow
($ in millions)(d) (120) 386 528 2,268
Operating cash flow
($/boe) (2.27) 6.35 2.27 9.15
Adjusted ebitda ($
in millions)(e) 385 298 1,339 2,385
Adjusted ebitda
($/boe) 7.28 4.90 5.76 9.62
Net loss available
to common
stockholders ($ in
millions) (741) (2,228) (4,881) (14,856)
Loss per share -
diluted ($) (0.84) (3.36) (6.39) (22.43)
Adjusted net income
(loss) available
to common
stockholders ($ in
millions)(f) 93 (168) (138) (329)
Adjusted income
(loss) per share
($)(g) 0.07 (0.19) (0.05) (0.24)
(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 unrealized gains
(losses) on supply contract
derivatives, but excludes
depreciation and amortization of
other assets. For the three
months ended December 31, 2016
and December 31, 2015, unrealized
gains (losses) were zero and $5
million, respectively. For the
year ended December 31, 2016 and
December 31, 2015, unrealized
gains (losses) were ($297
million) and $296 million,
respectively.
(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 19.
(f) Defined as net income available to
common stockholders, as adjusted
to remove the effects of certain
items detailed on pages 13 -16.
(g) We have revised our presentation
of adjusted loss per share to
exclude shares considered
antidilutive when calculating
earnings per share in accordance
with GAAP.
2016 Fourth Quarter and Year-End Financial and Operational Results Conference Call Information
A conference call to discuss this release has been scheduled on Thursday, February 23, 2017 at 9:00 am EDT. The telephone number to access the conference call is 719-325-2355 or toll-free 888-417-8531. The passcode for the call is 2585187. 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 2585187. 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 gathering and 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 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 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 Years Ended
December 31, December 31,
------------ ------------
2016 2015 2016 2015
---- ---- ---- ----
REVENUES:
Oil, natural gas and NGL $678 $1,269 $3,288 $5,391
Marketing, gathering and compression 1,343 1,380 4,584 7,373
----- -----
Total Revenues 2,021 2,649 7,872 12,764
----- ----- ----- ------
OPERATING EXPENSES:
Oil, natural gas and NGL production 158 220 710 1,046
Oil, natural gas and NGL gathering,
processing and transportation 419 690 1,855 2,119
Production taxes 20 12 74 99
Marketing, gathering and compression 1,368 1,378 4,778 7,130
General and administrative 68 62 240 235
Restructuring and other termination
costs 3 (3) 6 36
Provision for legal contingencies 11 (6) 123 353
Oil, natural gas and NGL depreciation,
depletion and amortization 214 326 1,002 2,099
Depreciation and amortization of other
assets 21 30 104 130
Impairment of oil and natural gas
properties - 2,831 2,520 18,238
Impairments of fixed assets and other 43 27 838 194
Net (gains) losses on sales of fixed
assets (7) 1 (12) 4
--- --- --- ---
Total Operating Expenses 2,318 5,568 12,238 31,683
----- ----- ------ ------
LOSS FROM OPERATIONS (297) (2,919) (4,366) (18,919)
---- ------ ------ -------
OTHER INCOME (EXPENSE):
Interest expense (99) (107) (296) (317)
Losses on investments (5) (39) (8) (96)
Impairments of investments (119) (53) (119) (53)
Losses on sales of investments - - (10) -
Gains (losses) on purchases or exchanges
of debt (19) 279 236 279
Other income 7 5 19 8
--- --- --- ---
Total Other Income (Expense) (235) 85 (178) (179)
---- --- ---- ----
LOSS BEFORE INCOME TAXES (532) (2,834) (4,544) (19,098)
---- ------ ------ -------
INCOME TAX BENEFIT:
Current income taxes (19) (30) (19) (36)
Deferred income taxes (171) (619) (171) (4,427)
---- ---- ---- ------
Total Income Tax Benefit (190) (649) (190) (4,463)
---- ---- ---- ------
NET LOSS (342) (2,185) (4,354) (14,635)
Net income attributable to
noncontrolling interests (1) - (2) (50)
--- --- --- ---
NET LOSS ATTRIBUTABLE TO CHESAPEAKE (343) (2,185) (4,356) (14,685)
Preferred stock dividends 30 (43) (97) (171)
Loss on exchange of preferred stock (428) - (428) -
---- --- ---- ---
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS $(741) $(2,228) $(4,881) $(14,856)
===== ======= ======= ========
LOSS PER COMMON SHARE:
Basic $(0.84) $(3.36) $(6.39) $(22.43)
====== ====== ====== =======
Diluted $(0.84) $(3.36) $(6.39) $(22.43)
====== ====== ====== =======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (in
millions):
Basic 887 663 764 662
=== === === ===
Diluted 887 663 764 662
=== === === ===
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
(unaudited)
December 31, December 31,
2016 2015
---- ----
Cash and
cash
equivalents $882 $825
Other
current
assets 1,260 1,655
Total
Current
Assets 2,142 2,480
----- -----
Property
and
equipment,
(net) 10,654 14,298
Other
assets 277 536
--- ---
Total
Assets $13,073 $17,314
======= =======
Current
liabilities $3,648 $3,685
Long-term
debt, net 9,938 10,311
Other long-
term
liabilities 645 921
Total
Liabilities 14,231 14,917
------ ------
Preferred
stock 1,771 3,062
Noncontrolling
interests 257 259
Common
stock and
other
stockholders'
equity (3,186) (924)
------ ----
Total
Equity
(Deficit) (1,158) 2,397
------ -----
Total
Liabilities
and Equity $13,073 $17,314
======= =======
Common
shares
outstanding
(in
millions) 895 663
=== ===
Principal
amount of
debt
outstanding $9,989 $9,706
====== ======
CHESAPEAKE ENERGY CORPORATION
ROLL-FORWARD OF PROVED RESERVES
YEAR ENDED DECEMBER 31, 2016
(unaudited)
Mmboe(a)
-------
Beginning balance, December 31, 2015 1,504
Production (233)
Acquisitions 55
Divestitures (241)
Revisions - changes to previous estimates 113
Revisions - price (70)
Extensions and discoveries 580
Ending balance, December 31, 2016 1,708
=====
Proved reserves growth rate before acquisitions and
divestitures 26%
Proved reserves growth rate after acquisitions and
divestitures 14%
Proved developed reserves 1,189
Proved developed reserves percentage 70%
PV-10 ($ in millions)(a) $4,405
(a) Reserve volumes and PV-10 value
estimated using SEC reserve
recognition standards and
pricing assumptions based on
the trailing 12-month average
first-day-of-the-month
prices as of December 31, 2016
of $42.75 per bbl of oil and
$2.49 per mcf of natural gas,
before basis differential
adjustments.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF PV-10
($ in millions)
(unaudited)
December 31, December 31,
2016 2015
---- ----
Standardized
measure of
discounted
future net cash
flows $4,379 $4,693
Discounted future
cash flows for
income taxes 26 34
Discounted future
net cash flows
before income
taxes (PV-10) $4,405 $4,727
====== ======
PV-10 is discounted (at 10%) future net cash flows before income taxes. The standardized measure of discounted future net cash flows includes the effects of estimated future income tax expenses and is calculated in accordance with Accounting Standards Codification Topic 932. Management uses PV-10 as one measure of the value of the company's current proved reserves and to compare relative values among peer companies without regard to income taxes. We also understand that securities analysts and rating agencies use this measure in similar ways. While PV-10 is based on prices, costs and discount factors which are consistent from company to company, the standardized measure is dependent on the unique tax situation of each individual company.
The company's PV-10 and standardized measure were calculated using the following prices, before basis differential adjustments: $42.75 per bbl of oil and $2.49 per mcf of natural gas as of December 31, 2016, and $50.28 per bbl of oil and $2.58 per mcf of natural gas as of December 31, 2015.
CHESAPEAKE ENERGY CORPORATION
SUPPLEMENTAL DATA - OIL, NATURAL GAS AND NGL PRODUCTION, SALES AND INTEREST EXPENSE
(unaudited)
Three Months Ended Years Ended
December 31, December 31,
------------ ------------
2016 2015 2016 2015
---- ---- ---- ----
Net Production:
Oil (mmbbl) 8 9 33 42
Natural gas (bcf) 236 268 1,049 1,070
NGL (mmbbl) 5 7 24 28
Oil equivalent (mmboe) 53 61 233 248
Oil, natural gas and NGL Sales
($ in millions):
Oil sales $399 $355 $1,351 $1,904
Oil derivatives - realized
gains (losses)(a) (5) 238 97 880
Oil derivatives - unrealized
gains (losses)(a) (101) (92) (318) (536)
Total Oil Sales 293 501 1,130 2,248
--- --- ----- -----
Natural gas sales 610 533 2,155 2,470
Natural gas derivatives -
realized gains (losses)(a) (41) 96 151 437
Natural gas derivatives -
unrealized gains (losses)(a) (296) 41 (500) (157)
---- --- ---- ----
Total Natural Gas Sales 273 670 1,806 2,750
--- --- ----- -----
NGL sales 113 98 360 393
NGL derivatives - realized
gains (losses)(a) (3) - (8) -
NGL derivatives - unrealized
gains (losses)(a) 2 - - -
---
Total NGL Sales 112 98 352 393
--- --- --- ---
Total Oil, Natural Gas and NGL
Sales $678 $1,269 $3,288 $5,391
==== ====== ====== ======
Average Sales Price -
excluding gains (losses) on
derivatives:
Oil ($ per bbl) $47.95 $38.33 $40.65 $45.77
Natural gas ($ per mcf) $2.59 $1.99 $2.05 $2.31
NGL ($ per bbl) $21.54 $14.07 $14.76 $14.06
Oil equivalent ($ per boe) $21.24 $16.20 $16.63 $19.23
Average Sales Price -
including realized gains
(losses) on derivatives:
Oil ($ per bbl) $47.37 $64.04 $43.58 $66.91
Natural gas ($ per mcf) $2.41 $2.35 $2.20 $2.72
NGL ($ per bbl) $20.90 $14.07 $14.43 $14.06
Oil equivalent ($ per boe) $20.30 $21.70 $17.66 $24.54
Interest Expense ($ in
millions):
Interest(b) $87 $107 $286 $329
Interest rate derivatives -
realized (gains) losses(c) (2) (2) (11) (6)
Interest rate derivatives -
unrealized (gains) losses(c) 14 2 21 (6)
Total Interest Expense $99 $107 $296 $317
=== ==== ==== ====
(a) Realized gains and losses include
the following items: (i)
settlements and accruals for
settlements of nondesignated
derivatives related to current
period production revenues, (ii)
prior period settlements for option
premiums and for early-terminated
derivatives originally scheduled to
settle against current period
production revenues, and (iii)
gains and losses related to de-
designated cash flow hedges
originally designated to settle
against current period production
revenues. Unrealized gains and
losses include the change in fair
value of open derivatives scheduled
to settle against future period
production revenues offset by
amounts reclassified as realized
gains and losses during the period.
Although we no longer designate our
derivatives as cash flow hedges for
accounting purposes, we believe
these definitions are useful to
management and investors in
determining the effectiveness of
our price risk management program.
(b) Net of amounts capitalized.
(c) Realized (gains) losses include
settlements related to the current
period interest accrual and the
effect of (gains) losses on early
termination trades. Unrealized
(gains) losses include changes in
the fair value of open interest
rate derivatives offset by amounts
reclassified to realized (gains)
losses during the period.
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED CASH FLOW DATA
($ in millions)
(unaudited)
THREE MONTHS ENDED: December 31, December 31,
2016 2015
--- ---- ----
Beginning cash $4 $1,759
--- ------
Net cash provided by (used in)
operating activities (254) 179
----
Cash flows from investing
activities:
Drilling and completion costs(a) (347) (399)
Acquisitions of proved and unproved
properties(b) (205) (126)
Proceeds from divestitures of
proved and unproved properties 418 1
Additions to other property and
equipment(c) (5) (29)
Proceeds from sales of other
property and equipment 61 9
Other (3) (2)
--- ---
Net cash used in investing
activities (81) (546)
--- ----
Net cash provided by (used in)
financing activities 1,213 (567)
----- ----
Change in cash and cash equivalents 878 (934)
--- ----
Ending cash $882 $825
==== ====
(a) Includes capitalized interest of
$2 million and $2 million for the
three months ended December 31,
2016 and 2015, respectively.
(b) Includes capitalized interest of
$56 million and $81 million for
the three months ended December
31, 2016 and 2015, respectively.
(c) Includes capitalized interest $1
million for the three months
ended December 31, 2015. No
capitalized interest was recorded
for the three months ended
December 31, 2016.
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED CASH FLOW DATA
($ in millions)
(unaudited)
YEARS ENDED: December 31, December 31,
2016 2015
--- ---- ----
Beginning cash $825 $4,108
---- ------
Net cash provided by (used in)
operating activities (204) 1,234
----
Cash flows from investing
activities:
Drilling and completion costs(a) (1,295) (3,095)
Acquisitions of proved and unproved
properties(b) (788) (533)
Proceeds from divestitures of
proved and unproved properties 1,406 189
Additions to other property and
equipment(c) (37) (143)
Proceeds from sales of other
property and equipment 131 89
Cash paid for title defects (69) -
Additions to investments - (1)
Decrease in restricted cash - 52
Other (8) (9)
--- ---
Net cash used in investing
activities (660) (3,451)
---- ------
Net cash provided by (used in)
financing activities 921 (1,066)
--- ------
Change in cash and cash equivalents 57 (3,283)
--- ------
Ending cash $882 $825
==== ====
(a) Includes capitalized interest of
$6 million and $24 million for
the years ended December 31, 2016
and 2015, respectively.
(b) Includes capitalized interest of
$236 million and $387 million for
the years ended December 31, 2016
and 2015, respectively.
(c) Includes capitalized interest of
$1 million and $4 million for the
years ended December 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: December 31, 2016
------------------- -----------------
$ Shares(a) $/Share(c) (d)
--- -------- --------------
Net loss available to common
stockholders $(741) 887 $(0.84)
Adjustments:
Unrealized losses on commodity
derivatives 395 0.45
Restructuring and other
termination costs 3 -
Provision for legal
contingencies 11 0.01
Impairments of fixed assets and
other 43 0.05
Net gains on sales of fixed
assets (7) (0.01)
Impairments of investments 119 0.13
Losses on purchases or exchanges
of debt 19 0.02
Other 13 0.02
Loss on exchange of preferred
stock 428 0.48
Income tax benefit(b) (190) (0.21)
Adjusted net loss available to
common stockholders(c) (Non-
GAAP) 93 0.10
--- ----
Preferred stock dividends (30) (0.03)
--- -----
Total adjusted net income
attributable to Chesapeake(c)
(d) (Non-GAAP) $63 $0.07
=== =====
(a) Weighted average
common and common
equivalent shares
outstanding do
not include 211
million shares
that were
considered
antidilutive for
calculating
earnings per
share in
accordance with
GAAP.
(b) Our effective tax
rate in the three
months ended
December 31, 2016
was 35.7%.
(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) We have revised
our presentation
of adjusted loss
per share to
exclude shares
considered
antidilutive when
calculating
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: December 31, 2015
------------------- -----------------
$ Shares(a) $/Share(c) (d)
--- -------- --------------
Net loss available to common
stockholders $(2,228) 663 $(3.36)
Adjustments:
Unrealized losses on commodity
derivatives 53 0.08
Unrealized gains on supply
contract derivatives (5) (0.01)
Restructuring and other
termination costs (3) -
Provision for legal
contingencies (6) (0.01)
Impairment of oil and natural
gas properties 2,831 4.27
Impairments of fixed assets and
other 27 0.04
Net losses on sales of fixed
assets 1 -
Impairments of investments 53 0.08
Gains on purchases or exchanges
of debt (279) (0.42)
Other - -
Tax effect of above items(b) (612) (0.92)
Adjusted net loss available to
common stockholders(c) (Non-
GAAP) (168) (0.25)
---- -----
Preferred stock dividends 43 0.06
--- ----
Total adjusted net loss
attributable to Chesapeake(c)
(d) (Non-GAAP) $(125) $(0.19)
===== ======
(a) Weighted average
common and common
equivalent shares
outstanding do
not include 114
million shares
that were
considered
antidilutive for
calculating
earnings per
share in
accordance with
GAAP.
(b) Our effective tax
rate in the three
months ended
December 31, 2015
was 22.9%.
(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) We have revised
our presentation
of adjusted loss
per share to
exclude shares
considered
antidilutive when
calculating
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)
YEAR ENDED: December 31, 2016
----------- -----------------
$ Shares(a) $/Share(c) (d)
--- -------- --------------
Net loss available to common
stockholders $(4,881) 764 $(6.39)
Adjustments:
Unrealized losses on commodity
derivatives 818 1.07
Unrealized losses on supply
contract derivatives 297 0.39
Restructuring and other
termination costs 6 0.01
Provision for legal
contingencies 123 0.16
Impairment of oil and natural
gas properties 2,520 3.30
Impairments of fixed assets and
other 838 1.10
Net gains on sales of fixed
assets (12) (0.02)
Impairments of investments 119 0.16
Loss on sale of investment 10 0.01
Gains on purchases or exchanges
of debt (236) (0.31)
Other 22 0.03
Loss on exchange of preferred
stock 428 0.56
Income tax benefit(b) (190) (0.25)
Adjusted net loss available to
common stockholders(c) (Non-
GAAP) (138) (0.18)
---- -----
Preferred stock dividends 97 0.13
--- ----
Total adjusted net loss
attributable to Chesapeake(c)
(d) (Non-GAAP) $(41) $(0.05)
==== ======
(a) Weighted average
common and common
equivalent shares
outstanding do
not include 247
million shares
that were
considered
antidilutive for
calculating
earnings per
share in
accordance with
GAAP.
(b) Our effective tax
rate in the year
ended December
31, 2016 was
4.2%.
(c) Adjusted net
income and
adjusted earnings
per 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) We have revised
our presentation
of adjusted loss
per share to
exclude shares
considered
antidilutive when
calculating
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)
YEAR ENDED: December 31, 2015
----------- -----------------
$ Shares(a) $/Share(c) (d)
--- -------- --------------
Net loss available to common
stockholders $(14,856) 662 $(22.43)
Adjustments:
Unrealized losses on commodity
derivatives 687 1.04
Unrealized gains on supply
contract derivatives (295) (0.45)
Restructuring and other
termination costs 36 0.05
Provision for legal
contingencies 353 0.53
Impairment of oil and natural
gas properties 18,238 27.55
Impairments of fixed assets and
other 194 0.29
Net losses on sales of fixed
assets 4 0.01
Impairments of investments 53 0.08
Gains on purchases or exchanges
of debt (279) (0.42)
Tax rate adjustment (17) (0.03)
Other (9) (0.02)
Tax effect of above items(b) (4,438) (6.70)
------
Adjusted net loss available to
common stockholders(c) (Non-
GAAP) (329) (0.50)
---- -----
Preferred stock dividends 171 0.26
---
Total adjusted net loss
attributable to Chesapeake(c)
(d) (Non-GAAP) $(158) (0.24)
===== =====
(a) Weighted average
common and common
equivalent shares
outstanding do
not include 114
million shares
that were
considered
antidilutive for
calculating
earnings per
share in
accordance with
GAAP.
(b) Our effective tax
rate in the year
ended December
31, 2015 was
23.4%.
(c) Adjusted net
income and
adjusted earnings
per common share
are not measures
of financial
performance under
accounting
principles
generally
accepted in the
United States
(GAAP), and
should not be
considered as an
alternative to
net income
available to
common
stockholders or
earnings per
share. Adjusted
net income
available to
common
stockholders and
adjusted earnings
per share exclude
certain items
that management
believes affect
the comparability
of operating
results. The
company believes
these adjusted
financial
measures are a
useful adjunct to
earnings
calculated in
accordance with
GAAP because:
(i) Management uses adjusted net
income available to common
stockholders to evaluate the
company's operational trends
and performance relative to
other oil and natural gas
producing companies.
(ii) Adjusted net income available to
common stockholders is more
comparable to earnings
estimates provided by
securities analysts.
(iii) Items excluded generally are
one-time items or items whose
timing or amount cannot be
reasonably estimated.
Accordingly, any guidance
provided by the company
generally excludes information
regarding these types of items.
(d) We have revised
our presentation
of adjusted loss
per share to
exclude shares
considered
antidilutive when
calculating
earnings per
share in
accordance with
GAAP.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF OPERATING CASH FLOW AND EBITDA
($ in millions)
(unaudited)
THREE MONTHS ENDED: December 31, December 31,
2016 2015
--- ---- ----
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $(254) $179
Changes in assets and
liabilities 134 207
--- ---
OPERATING CASH FLOW(a) $(120) $386
===== ====
THREE MONTHS ENDED: December 31, December 31,
2016 2015
--- ---- ----
NET LOSS $(342) $(2,185)
Interest expense 99 107
Income tax benefit (190) (649)
Depreciation and amortization
of other assets 21 30
Oil, natural gas and NGL
depreciation, depletion and
amortization 214 326
--- ---
EBITDA(b) $(198) $(2,371)
===== =======
THREE MONTHS ENDED: December 31, December 31,
2016 2015
--- ---- ----
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $(254) $179
Changes in assets and
liabilities 134 207
Interest expense, net of
unrealized gains (losses) on
derivatives 85 104
Gains (losses) on commodity
derivatives, net (444) 284
Gains on supply contract
derivatives, net - 5
Cash (receipts) payments on
commodity and supply
contract derivative
settlements, net 40 (273)
Renegotiations of natural gas
gathering contracts 49 -
Stock-based compensation (12) (17)
Restructuring and other
termination costs (2) 3
Provision for legal
contingencies (10) 19
Impairment of oil and natural
gas properties - (2,831)
Impairments of fixed assets
and other 318 (16)
Net gains (losses) on sales
of fixed assets 7 (1)
Investment activity (5) (39)
Impairment of investment (119) (53)
Gains on purchases or
exchanges of debt (19) 304
Other items 34 (246)
--- ----
EBITDA(b) $(198) $(2,371)
===== =======
(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. Operating cash flow for the
three months ended December 31, 2016
includes $361 million paid to terminate
certain gas gathering agreements and $49
million paid to renegotiate certain gas
gathering agreements.
(b) Ebitda represents net income before
interest expense, income taxes, and
depreciation, depletion and amortization
expense. Ebitda is presented as a
supplemental financial measurement in the
evaluation of our business. We believe
that it provides additional information
regarding our ability to meet our future
debt service, capital expenditures and
working capital requirements. This
measure is widely used by investors and
rating agencies in the valuation,
comparison, rating and investment
recommendations of companies. Ebitda is
also a financial measurement that, with
certain negotiated adjustments, is
reported to our lenders pursuant to our
bank credit agreements and is used in the
financial covenants in our bank credit
agreements. Ebitda is not a measure of
financial performance under GAAP.
Accordingly, it should not be considered
as a substitute for net income, income
from operations or cash flow provided by
operating activities prepared in
accordance with GAAP.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF OPERATING CASH FLOW AND EBITDA
($ in millions)
(unaudited)
YEARS ENDED: December 31, December 31,
2016 2015
--- ---- ----
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $(204) $1,234
Changes in assets and
liabilities 732 1,034
--- -----
OPERATING CASH FLOW(a) $528 $2,268
==== ======
YEARS ENDED: December 31, December 31,
2016 2015
--- ---- ----
NET LOSS $(4,354) $(14,635)
Interest expense 296 317
Income tax benefit (190) (4,463)
Depreciation and amortization
of other assets 104 130
Oil, natural gas and NGL
depreciation, depletion and
amortization 1,002 2,099
----- -----
EBITDA(b) $(3,142) $(16,552)
======= ========
YEARS ENDED: December 31, December 31,
2016 2015
--- ---- ----
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $(204) $1,234
Changes in assets and
liabilities 732 1,034
Interest expense, net of
unrealized gains (losses) on
derivatives 275 321
Gains (losses) on commodity
derivatives, net (578) 624
Gains (losses) on supply
contract derivatives, net (151) 295
Cash receipts on commodity
and supply contract
derivative settlements, net (448) (1,132)
Renegotiations of natural gas
gathering contracts 115 -
Stock-based compensation (52) (78)
Restructuring and other
termination costs (3) 14
Provision for legal
contingencies (87) (340)
Impairment of oil and natural
gas properties (2,520) (18,238)
Impairments of fixed assets
and other (467) (175)
Net gains (losses) on sales
of fixed assets 12 (4)
Investment activity (18) (96)
Impairment of investment (119) (53)
Gains on purchases or
exchanges of debt 236 304
Other items 135 (262)
--- ----
EBITDA(b) $(3,142) $(16,552)
======= ========
(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. Operating cash flow for the
year ended December 31, 2016 includes
$361 million paid to terminate certain
gas gathering agreements and $115 million
paid to renegotiate certain gas gathering
agreements.
(b) Ebitda represents net income before
interest expense, income taxes, and
depreciation, depletion and amortization
expense. Ebitda is presented as a
supplemental financial measurement in the
evaluation of our business. We believe
that it provides additional information
regarding our ability to meet our future
debt service, capital expenditures and
working capital requirements. This
measure is widely used by investors and
rating agencies in the valuation,
comparison, rating and investment
recommendations of companies. Ebitda is
also a financial measurement that, with
certain negotiated adjustments, is
reported to our lenders pursuant to our
bank credit agreements and is used in the
financial covenants in our bank credit
agreements. Ebitda is not a measure of
financial performance under GAAP.
Accordingly, it should not be considered
as a substitute for net income, income
from operations or cash flow provided by
operating activities prepared in
accordance with GAAP.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF ADJUSTED EBITDA
($ in millions)
(unaudited)
THREE MONTHS ENDED: December 31, December 31,
2016 2015
--- ---- ----
EBITDA $(198) $(2,371)
Adjustments:
Unrealized losses on commodity
derivatives 395 51
Unrealized gains on supply
contract derivatives - (5)
Restructuring and other
termination costs 3 (3)
Provision for legal
contingencies 11 (6)
Impairment of oil and natural
gas properties - 2,831
Impairments of fixed assets and
other 43 27
Net (gains) losses on sales of
fixed assets (7) 1
Impairment of investment 119 53
(Gains) losses on purchases or
exchanges of debt 19 (279)
Net income attributable to
noncontrolling interests (1) -
Other 1 (1)
--- ---
Adjusted EBITDA(a) $385 $298
==== ====
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF ADJUSTED EBITDA
($ in millions)
(unaudited)
YEARS ENDED: December 31, December 31,
2016 2015
--- ---- ----
EBITDA $(3,142) $(16,552)
Adjustments:
Unrealized losses on commodity
derivatives 818 693
Unrealized (gains) losses on
supply contract derivatives 297 (295)
Restructuring and other
termination costs 6 36
Provision for legal
contingencies 123 353
Impairment of oil and natural
gas properties 2,520 18,238
Impairments of fixed assets and
other 838 194
Net (gains) losses on sales of
fixed assets (12) 4
Impairment of investment 119 53
Loss on sale of investment 10 -
Gains on purchases or exchanges
of debt (236) (279)
Net income attributable to
noncontrolling interests (2) (50)
Other - (10)
--- ---
Adjusted EBITDA(a) $1,339 $2,385
====== ======
(a) Adjusted ebitda
excludes certain
items that
management
believes affect
the comparability
of operating
results. The
company believes
these non-GAAP
financial measures
are a useful
adjunct to ebitda
because:
(i) Management uses adjusted ebitda
to evaluate the company's
operational trends and
performance relative to other
oil and natural gas producing
companies.
(ii) Adjusted ebitda is more
comparable to estimates
provided by securities
analysts.
(iii) Items excluded generally are
one-time items or items whose
timing or amount cannot be
reasonably estimated.
Accordingly, any guidance
provided by the company
generally excludes information
regarding these types of items.
Accordingly,
adjusted EBITDA
should not be
considered as a
substitute for net
income, income
from operations or
cash flow provided
by operating
activities
prepared in
accordance with
GAAP.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF PV-9 AND PV-10 TO STANDARDIZED MEASURE
($ 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, 2015 and for the period ended December 31, 2016. 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.
PV-9 - December 31, 2016 @ NYMEX
Strip $11,887
Less: Change in discount factor
from 9 to 10 (658)
----
PV-10 - December 31, 2016 @ NYMEX
Strip 11,229
Less: Change in pricing assumption
from NYMEX Strip to SEC (6,824)
------
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 FEBRUARY 23, 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) (3%) to 2%
Absolute Production
Liquids - mmbbls 51 - 55
Oil - mmbbls 33 - 35
NGL - mmbbls 18 - 20
Natural gas - bcf 860 - 900
Total absolute production - mmboe 194 - 205
Absolute daily rate - mboe 532 - 562
Estimated Realized Hedging Effects(b)
(based on 2/9/17 strip prices):
Oil - $/bbl ($0.15)
Natural gas - $/mcf ($0.24)
NGL - $/bbl $0.06
Estimated Basis to NYMEX Prices:
Oil - $/bbl $1.55 - $1.75
Natural gas - $/mcf $0.35 - $0.45
NGL - $/bbl $4.00 - $4.40
Operating Costs per Boe of Projected
Production:
Production expense $2.50 - $2.70
Gathering, processing and
transportation expenses $7.00 - $7.50
Oil - $/bbl $4.25 - $4.45
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) $1,700 - $2,300
Capitalized Interest ($ in millions) $200
Total Capital Expenditures ($ in
millions) $1,900 - $2,500
(a) Based on 2016 production of 547
mboe per day, adjusted for 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 expenses associated with
stock-based compensation.
(d) Excludes unrealized gains (losses)
on interest rate derivatives.
(e) Includes revenue and operating
expenses. Excludes depreciation
and amortization of other assets.
(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 February 22, 2017, the company had downside protection, through open swaps, on its 2017 oil production at an average price of $50.19 per bbl. The company had downside price protection, through open swaps and two-way collars, on its 2017 natural gas production at an average price of $3.07 per mcf. Chesapeake also had downside price protection, through open swaps, on a portion of its 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 $3.09 per mcf.
The company's crude oil hedging positions as of February 22, 2017 were as follows:
Open Crude Oil Swaps; Gains from Closed
Crude Oil Trades and Call Option Premiums
Open Swaps Avg. NYMEX Total Gains from Closed
Trades
(mbbls) Price of and Premiums for
Open Swaps Call Options
($ in millions)
--------------
Q1 2017 5,850 $50.01 $22
Q2 2017 5,915 $50.12 23
Q3 2017 5,612 $50.27 23
Q4 2017 5,612 $50.36 23
------- ----- ------ ---
Total 2017 22,989 $50.19 $91
========== ====== ====== ===
Total 2018 -
2022 $(13)
============ ====
Crude Oil Net Written Call Options
Call Options Avg. NYMEX
(mbbls) Strike Price
------ ------------
Q1 2017 1,305 $83.50
Q2 2017 1,320 $83.50
Q3 2017 1,334 $83.50
Q4 2017 1,334 $83.50
------- ----- ------
Total 2017 5,293 $83.50
========== ===== ======
The company's natural gas hedging positions as of February 22, 2017 were as follows:
Open Natural Gas Swaps; Losses from Closed
Natural Gas Trades and Call Option Premiums
Open Swaps Avg. NYMEX Total Losses
(bcf) Price of from Closed Trades
Open Swaps and Premiums for
Call Options
($ in millions)
--------------
Q1 2017 144 $3.22 $(3)
Q2 2017 157 $2.96 (1)
Q3 2017 158 $3.00 (2)
Q4 2017 140 $3.10 (3)
------- --- ----- ---
Total 2017 599 $3.07 $(9)
========== === ===== ===
Total 2018 -
2022 120 $3.13 $(69)
============ === ===== ====
Natural Gas Two-Way Collars
Open Avg. Avg.
Collars NYMEX NYMEX
(bcf) Bought Put Sold Call
Price Price
----- -----
Q1 2017 23 $3.00 $3.48
------- --- ----- -----
Total 2017 23 $3.00 $3.48
========== === ===== =====
Total 2018 47 $3.00 $3.25
========== === ===== =====
Natural Gas Net Written Call Options
Call Options Avg. NYMEX
(bcf) Strike Price
---- ------------
Q1 2017 12 $9.43
Q2 2017 12 $9.43
Q3 2017 12 $9.43
Q4 2017 12 $9.43
------- --- -----
Total 2017 48 $9.43
========== === =====
Total 2018 -
2020 66 $12.00
============ === ======
Natural Gas Basis Protection Swaps
Volume Avg. NYMEX
plus/(minus)
(bcf)
----
Q1 2017 13 $0.35
Q2 2017 5 $(0.46)
Q3 2017 6 $(0.46)
Q4 2017 6 $(0.46)
------- --- ------
Total 2017 30 $(0.11)
========== === ======
Total 2018 1 $(1.03)
========== === ======
The company's natural gas liquids hedging positions as of February 22, 2017 were as follows:
Open Ethane Swaps
Volume Avg. NYMEX
Price of Open
(mmgal) Swaps
------ -----
Q1 2017 26 $0.28
------- --- -----
Q2 2017 27 $0.28
======= === =====
Total 2017 53 $0.28
========== === =====
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/chesapeake-energy-corporation-reports-2016-full-year-and-fourth-quarter-financial-and-operational-results-300412336.html
SOURCE Chesapeake Energy Corporation
