Chesapeake Energy Corporation Reports 2018 First Quarter Financial And Operational Results
Chesapeake Energy Corporation Reports 2018 First Quarter Financial And Operational Results
OKLAHOMA CITY, May 2, 2018 /PRNewswire/ -- Chesapeake Energy Corporation (NYSE:CHK) today reported financial and operational results for the 2018 first quarter. Highlights include:
-- 2018 first quarter net income available to common stockholders of $268
million, or $0.29 per diluted share; 2018 first quarter adjusted net
income available to common stockholders of $361 million, or $0.34 per
diluted share
-- 2018 first quarter net cash provided by operating activities increased
$557 million compared to 2017 first quarter
-- Reduced $581 million principal amount of long-term debt in 2018 first
quarter
-- Average 2018 first quarter production of approximately 554,000 barrels
of oil equivalent (boe) per day, up 11 percent compared to 2017 first
quarter, adjusted for asset sales
-- Average 2018 first quarter oil production of approximately 92,000
barrels of oil per day, up 16 percent compared to 2017 first quarter,
adjusted for asset sales
Doug Lawler, Chesapeake's Chief Executive Officer, commented, "The strength of our operations and improved cost structure, coupled with higher realized prices, resulted in our best quarterly financial performance in over three years. For the second consecutive quarter, we recorded significant growth in our earnings and cash flow. Notably, our margin improvement, while aided by increases in commodity indices, was primarily driven by strong oil production and a lower cost structure, highlighting the differential profit generated beyond price impacts, and the sustainability of our improving financial performance. The net cash flow provided by operating and investing activities, including net proceeds from asset sales, was $609 million for the quarter and was the highest in more than three years, allowing us to reduce our long-term debt by $581 million. Our results provide further evidence that we are achieving our long term goals of growing cash flow, expanding margins, reducing long term debt and generating higher returns to shareholders."
2018 First Quarter Results
For the 2018 first quarter, Chesapeake reported net income of $294 million and net income available to common stockholders of $268 million, or $0.29 per diluted share. The company's EBITDA for the 2018 first quarter was $703 million. Adjusting for items that are typically excluded by securities analysts, the 2018 first quarter adjusted net income attributable to Chesapeake was $361 million, or $0.34 per diluted share, while the company's adjusted EBITDA was $733 million. Reconciliations of financial measures calculated in accordance with GAAP to non-GAAP measures are provided on pages 11 - 13 of this release.
Production expenses during the 2018 first quarter were $2.94 per boe, while general and administrative expenses (including stock-based compensation) during the 2018 first quarter were $1.44 per boe. The increase in production expenses was primarily the result of increased saltwater disposal costs and workover activity. With regard to general and administrative expenses, lower compensation costs were more than offset by lower overhead allocations, primarily as a result of certain 2017 divestitures. Chesapeake's combined production and general and administrative expenses per boe increased by 5 percent year over year. However, the company's gathering, processing, and transportation expenses decreased by 4 percent year over year to $7.15 per boe during the 2018 first quarter, resulting in lower overall expenses per unit of production on a combined basis.
Capital Spending Overview
Chesapeake's total capital expenditures (including accruals) were approximately $611 million during the 2018 first quarter, including capitalized interest of $43 million, compared to approximately $576 million in the 2017 first quarter. A summary is provided in the table below.
Three Months Ended
March 31,
---------
2018 2017
---- ----
Operated activity comparison
Average rig count 15 16
Gross wells spud 77 87
Gross wells completed 76 99
Gross wells connected 57 76
Type of cost ($ in millions)
Drilling and completion capital expenditures $539 $506
Exploration costs, leasehold and additions to other PP&E 29 19
---
Subtotal capital expenditures $568 $525
Capitalized interest 43 51
--- ---
Total capital expenditures $611 $576
==== ====
Balance Sheet and Liquidity
As of March 31, 2018, Chesapeake's principal debt balance was approximately $9.400 billion, compared to $9.981 billion as of December 31, 2017. Also, as of March 31, 2018, the company had $200 million of outstanding borrowings and had used $157 million for various letters of credit under the senior secured revolving credit facility resulting in approximately $3.4 billion of available liquidity under the facility.
During the 2018 first quarter, the company closed certain property sales for net proceeds of approximately $387 million. In addition, in February 2018 Chesapeake sold approximately 4.3 million shares of FTS International (NYSE: FTSI) for approximately $74 million in net proceeds and continues to hold approximately 22.0 million shares in the publicly traded company. FTSI is a provider of hydraulic fracturing services in North America. Chesapeake used the $461 million in aggregate proceeds described above to reduce its outstanding borrowings under its revolving credit facility. Subsequent to the 2018 first quarter, in April the company closed an additional asset sale for properties in the Mid-Continent for approximately $60 million in net proceeds which reduced Chesapeake's outstanding borrowings under its revolving credit facility.
Operations Update
Chesapeake's average daily production for the 2018 first quarter was approximately 554,000 boe compared to approximately 528,000 boe in the 2017 first quarter. The following tables show average daily production and average daily sales prices received by the company's operating divisions for the 2018 and 2017 first quarters, respectively.
Three Months Ended March 31, 2018
Oil Natural Gas NGL Total
mbbl $/bbl mmcf $/mcf mbbl $/bbl mboe % $/boe
per day per day per day per day
------- ------- ------- -------
Marcellus - - 873 3.74 - - 146 26 22.46
Haynesville - - 833 2.80 - - 139 25 16.86
Eagle Ford 61 66.16 141 3.30 18 24.72 102 19 48.22
Utica 11 59.82 440 2.94 23 25.03 107 19 23.39
Mid-Continent 9 62.04 87 2.70 5 26.15 28 5 32.46
Powder River Basin 7 62.86 47 2.82 3 28.77 18 3 37.68
--- --- --- --- ---
Retained assets(a) 88 64.66 2,421 3.19 49 25.24 540 97 27.10
Divested assets 4 63.60 45 2.81 2 30.07 14 3 33.53
--- ---
Total 92 64.61 2,466 3.18 51 25.45 554 100% 27.27
=== ===== === === ===
Three Months Ended March 31, 2017
Oil Natural Gas NGL Total
mbbl $/bbl mmcf $/mcf mbbl $/bbl mboe % $/boe
per day per day per day per day
------- ------- ------- -------
Marcellus - - 837 3.01 - - 139 27 18.04
Haynesville - - 682 2.98 - - 114 22 17.86
Eagle Ford 56 50.90 135 3.40 17 21.38 96 18 38.52
Utica 8 45.42 380 3.50 25 25.65 96 18 24.16
Mid-Continent 7 49.64 92 3.04 6 22.45 28 5 26.73
Powder River Basin 5 49.70 29 3.33 2 25.58 12 2 32.67
--- --- --- --- ---
Retained assets(a) 76 50.16 2,155 3.11 50 23.81 485 92 24.13
Divested assets 8 50.96 187 2.88 4 23.43 43 8 24.06
---
Total 84 50.24 2,342 3.10 54 23.78 528 100% 24.13
=== ===== === === ===
(a) Includes assets
retained as of March
31, 2018.
In the Powder River Basin (PRB) in Wyoming, Chesapeake is currently utilizing four rigs, all of which are drilling in the Turner formation. Chesapeake placed six wells on production during the 2018 first quarter in the PRB and expects to place 12 wells on production during the 2018 second quarter and up to 35 wells for the full-year 2018.
As part of a reduced Turner spacing test, six of the company's 12 second quarter wells were placed on production in April 2018 and spaced at approximately 1,980 to 2,300 feet apart. While currently on conservative choke settings between 20 and 22/64ths, the six wells have ranged from 6 to 19 days on production with current flowing tubing pressures ranging from 2,750 to 3,050 pounds. The company is encouraged by initial results from these tighter-spaced wells, as the bounded middle well spaced at approximately 1,980 feet has already reached a production rate of approximately ~2,000 boe per day (46% oil) after 18 days on production. The company expects significantly higher rates as these wells clean up over the next 30 days.
In the company's Mid-Continent operating area in Oklahoma, Chesapeake is currently utilizing two drilling rigs and placed eight wells on production during the 2018 first quarter and expects to place nine wells on production during the 2018 second quarter and up to 35 wells for the full-year 2018. Chesapeake has drilled its first horizontal well targeting the Chester formation in Woods County in April 2018 and expects to place this well on production later this quarter. While one rig will continue to drill appraisal opportunities on the company's approximately 800,000 net acre position during 2018, the second rig will continue developing the Oswego oil play.
In the Eagle Ford Shale, Chesapeake is currently utilizing five drilling rigs and placed 23 wells on production during the 2018 first quarter and expects to place approximately 50 wells on production during the 2018 second quarter and up to 150 wells for the full-year 2018.
In the Utica Shale in Ohio, Chesapeake is currently utilizing two drilling rigs and placed ten wells on production during the 2018 first quarter. The company has recently changed its completion methodologies resulting in 30-day average daily production rates that have increased by approximately 65 percent for its first six wells in 2018 under this new program. Chesapeake expects to place seven wells on production during the 2018 second quarter and up to 35 wells for the full-year 2018.
In the Marcellus Shale, Chesapeake is currently utilizing one drilling rig and placed six wells on production during the 2018 first quarter and expects to place 17 wells on production during the 2018 second quarter and up to 50 wells for the full-year 2018.
In the Haynesville Shale in Louisiana, Chesapeake is currently utilizing three drilling rigs and placed four wells on production during the 2018 first quarter and expects to place eight wells on production during the 2018 second quarter and up to 25 wells for the full-year 2018.
Key Financial and Operational Results
The table below summarizes Chesapeake's key financial and operational results during the 2018 first quarter as compared to results in prior periods.
Three Months Ended March 31,
2018 2017
---- ----
Barrels of oil equivalent
production (in mboe) 49,879 47,516
Barrels of oil equivalent
production (mboe/d) 554 528
Oil production (in mbbl/d) 92 84
Average realized oil price
($/bbl)(a) 56.89 51.72
Natural gas production (in
mmcf/d) 2,466 2,342
Average realized natural gas
price ($/mcf)(a) 3.49 3.02
NGL production (in mbbl/d) 51 54
Average realized NGL price
($/bbl)(a) 25.36 24.04
Production expenses ($/boe) 2.94 2.84
Gathering, processing and
transportation expenses
($/boe) 7.15 7.47
Oil - ($/bbl) 4.18 3.85
Natural Gas - ($/mcf) 1.27 1.35
NGL - ($/bbl) 8.83 8.47
Production taxes ($/boe) 0.62 0.47
General and administrative
expenses ($/boe)(b) 1.30 1.18
General and administrative
expenses (stock-based
compensation) (non-cash)
($/boe) 0.14 0.17
DD&A of oil and natural gas
properties ($/boe) 5.38 4.15
DD&A of other assets ($/boe) 0.36 0.44
Interest expense ($/boe)(a) 2.45 1.97
Marketing net margin ($ in
millions) (22) (44)
Net cash provided by operating
activities ($ in millions) 656 99
Net cash provided by operating
activities ($/boe) 13.15 2.06
Operating cash flow ($ in
millions)(c) 552 (14)
Operating cash flow ($/boe) 11.07 (0.29)
Net income ($ in millions) 294 141
Net income available to common
stockholders ($ in millions) 268 75
Net income per share available
to common stockholders -
diluted ($) 0.29 0.08
Adjusted EBITDA ($ in
millions)(d) 733 525
Adjusted EBITDA ($/boe) 14.70 11.05
Adjusted net income
attributable to Chesapeake ($
in millions)(e) 361 212
Adjusted net income
attributable to Chesapeake
per share -diluted ($ in
millions)(f) 0.34 0.23
(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, which
are recorded in general and
administrative expenses in
Chesapeake's Condensed Consolidated
Statement of Operations.
(c) Defined as cash flow provided by
operating activities before changes
in components of working capital
and other assets and liabilities.
This is a non-GAAP measure. See
reconciliation to cash provided by
(used in) operating activities on
page 12.
(d) Defined as net income (loss) before
interest expense, income taxes and
depreciation, depletion and
amortization expense, as adjusted
to remove the effects of certain
items detailed on page 13. This is
a non-GAAP measure. See
reconciliation of net income (loss)
to EBITDA on page 12 and
reconciliation of EBITDA to
adjusted EBITDA on page 13.
(e) Defined as net income (loss)
attributable to Chesapeake, as
adjusted to remove the effects of
certain items detailed on page 11.
This is a non-GAAP measure. See
reconciliation of net income to
adjusted net income (loss)
available to Chesapeake on page 11.
(f) Our presentation of diluted adjusted
net income (loss) attributable to
Chesapeake per share excludes 60
million and 208 million shares for
the three months ended March 31,
2018 and 2017, respectively,
considered antidilutive when
calculating diluted earnings per
share.
2018 First Quarter Financial and Operational Results Conference Call Information
A conference call to discuss this release has been scheduled on Wednesday, May 2, 2018 at 9:00 am EDT. The telephone number to access the conference call is 323-794-2093 or toll-free 866-548-4713. The passcode for the call is 2838919. 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 2838919. 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.
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, management's outlook guidance or forecasts of future events, production and well connection forecasts, estimates of operating costs, anticipated capital and operational efficiencies, planned development drilling and expected drilling cost reductions, anticipated timing of wells to be placed into production, general and administrative expenses, capital expenditures, the timing of anticipated asset sales and proceeds to be received therefrom, the expected use of proceeds of anticipated asset sales, projected cash flow and liquidity, our ability to enhance our cash flow and financial flexibility, plans and objectives for future operations, 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; an interruption in operations at our headquarters due to a catastrophic event; certain anti-takeover provisions that affect shareholder rights; and our inability to increase or maintain our liquidity through debt repurchases, capital exchanges, asset sales, joint ventures, farmouts or other means.
In addition, disclosures concerning the estimated contribution of derivative contracts to our future results of operations are based upon market information as of a specific date. These market prices are subject to significant volatility. Our production forecasts are also dependent upon many assumptions, including estimates of production decline rates from existing wells and the outcome of future drilling activity. Expected asset sales may not be completed in the time frame anticipated or at all. We caution you not to place undue reliance on our forward-looking statements, which speak only as of the date of this news release, and we undertake no obligation to update any of the information provided in this release or the accompanying Outlook, except as required by applicable law. In addition, this news release contains time-sensitive information that reflects management's best judgment only as of the date of this news release.
INVESTOR CONTACT: MEDIA CONTACT:
Brad Sylvester, CFA Gordon Pennoyer
(405) 935-8870 (405) 935-8878
ir@chk.com media@chk.com
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in millions except per share data)
(unaudited)
Three Months Ended
March 31,
---------
2018 2017
---- ----
REVENUES:
Oil, natural gas and NGL $1,243 $1,469
Marketing 1,246 1,284
Total Revenues 2,489 2,753
----- -----
OPERATING EXPENSES:
Oil, natural gas and NGL production 147 135
Oil, natural gas and NGL gathering,
processing and transportation 356 355
Production taxes 31 22
Marketing 1,268 1,328
General and administrative 72 65
Restructuring and other termination costs 38 -
Provision for legal contingencies, net 5 (2)
Oil, natural gas and NGL depreciation,
depletion and amortization 268 197
Depreciation and amortization of other
assets 18 21
Other operating expense - 391
Net losses on sales of fixed assets 8 -
Total Operating Expenses 2,211 2,512
----- -----
INCOME FROM OPERATIONS 278 241
--- ---
OTHER INCOME (EXPENSE):
Interest expense (123) (95)
Gains on investments 139 -
Losses on purchases or exchanges of debt - (7)
Other income - 3
Total Other Income (Expense) 16 (99)
---
INCOME BEFORE INCOME TAXES 294 142
--- ---
Income tax expense - 1
NET INCOME 294 141
--- ---
Net income attributable to noncontrolling
interests (1) (1)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE 293 140
--- ---
Preferred stock dividends (23) (23)
Loss on exchange of preferred stock - (41)
Earnings allocated to participating
securities (2) (1)
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS $268 $75
==== ===
EARNINGS PER COMMON SHARE:
Basic $0.30 $0.08
===== =====
Diluted $0.29 $0.08
===== =====
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (in
millions):
Basic 907 906
=== ===
Diluted 1,053 907
===== ===
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
(unaudited)
March 31, 2018 December 31,
2017
----
Cash and cash equivalents $4 $5
Other current assets 1,220 1,520
-----
Total Current Assets 1,224 1,525
----- -----
Property and equipment, net 10,592 10,680
Other long-term assets 270 220
--- ---
Total Assets $12,086 $12,425
======= =======
Current liabilities $2,354 $2,356
Long-term debt, net 9,325 9,921
Other long-term liabilities 504 520
Total Liabilities 12,183 12,797
------ ------
Preferred stock 1,671 1,671
Noncontrolling interests 123 124
Common stock and other
stockholders' equity
(deficit) (1,891) (2,167)
------ ------
Total Equity (Deficit) (97) (372)
--- ----
Total Liabilities and Equity $12,086 $12,425
======= =======
Common shares outstanding (in
millions) 912 909
=== ===
Principal amount of debt
outstanding $9,400 $9,981
====== ======
CHESAPEAKE ENERGY CORPORATION
SUPPLEMENTAL DATA - OIL, NATURAL GAS AND NGL PRODUCTION, SALES AND INTEREST EXPENSE
(unaudited)
Three Months Ended
March 31,
---------
2018 2017
---- ----
Net Production:
Oil (mmbbl) 8 8
Natural gas (bcf) 222 211
NGL (mmbbl) 5 5
Oil equivalent (mmboe) 50 48
Average daily production (mboe) 554 528
Oil, natural gas and NGL Sales ($ in millions):
Oil sales $537 $378
Natural gas sales 706 653
NGL sales 117 116
Total oil, natural gas and NGL sales $1,360 $1,147
------ ------
Financial Derivatives:
Oil derivatives - realized gains (losses)(a) $(64) 11
Natural gas derivatives - realized gains (losses)(a) 67 (16)
NGL derivatives - realized gains (losses)(a) (1) 1
Total realized gains (losses) on financial derivatives $2 $(4)
--- ---
Oil derivatives - unrealized gains (losses)(a) (22) 94
Natural gas derivatives - unrealized gains (losses)(a) (99) 231
NGL derivatives - unrealized gains(a) 2 1
--- ---
Total unrealized gains (losses) on financial derivatives $(119) $326
----- ----
Total financial derivatives $(117) $322
----- ----
Total oil, natural gas and NGL sales $1,243 $1,469
====== ======
Average Sales Price (excluding gains (losses) on derivatives):
Oil ($ per bbl) $64.61 $50.24
Natural gas ($ per mcf) $3.18 $3.10
NGL ($ per bbl) $25.45 $23.78
Oil equivalent ($ per boe) $27.27 $24.13
Average Sales Price (excluding unrealized gains (losses) on derivatives):
Oil ($ per bbl) $56.89 $51.72
Natural gas ($ per mcf) $3.49 $3.02
NGL ($ per bbl) $25.36 $24.04
Oil equivalent ($ per boe) $27.31 $24.06
Interest Expense ($ in millions):
Interest expense(b) $123 $94
Interest rate derivatives - realized gains(c) (1) (1)
Interest rate derivatives - unrealized losses(c) 1 2
Total Interest Expense $123 $95
==== ===
(a) Realized gains (losses) include
the following items: (i)
settlements and accruals for
settlements of undesignated
derivatives related to current
period production revenues, (ii)
prior period settlements for
option premiums and for early-
terminated derivatives originally
scheduled to settle against
current period production
revenues, and (iii) gains
(losses) related to de-
designated cash flow hedges
originally designated to settle
against current period production
revenues. Unrealized gains
(losses) include the change in
fair value of open derivatives
scheduled to settle against
future period production revenues
(including current period
settlements for option premiums
and early terminated derivatives)
offset by amounts reclassified as
realized gains (losses) during
the period. Although we no longer
designate our derivatives as cash
flow hedges for accounting
purposes, we believe these
definitions are useful to
management and investors in
determining the effectiveness of
our price risk management
program.
(b) Net of amounts capitalized.
(c) Realized (gains) losses include
interest rate derivative
settlements related to current
period interest and the effect of
(gains) losses on early-
terminated trades. Settlements of
early-terminated trades are
reflected in realized (gains)
losses over the original life of
the hedged item. Unrealized
(gains) losses include changes in
the fair value of open interest
rate derivatives offset by
amounts reclassified to realized
(gains) losses during the period.
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED CASH FLOW DATA
($ in millions)
(unaudited)
Three Months Ended
March 31,
---------
2018 2017
---- ----
Beginning cash and
cash equivalents $5 $882
--- ----
Net cash provided by
operating activities 656 99
--- ---
Cash flows from
investing activities:
Drilling and
completion costs(a) (442) (433)
Acquisitions of proved
and unproved
properties(b) (63) (95)
Proceeds from
divestitures of
proved and unproved
properties 319 892
Additions to other
property and
equipment (3) (3)
Proceeds from sales of
other property and
equipment 68 19
Proceeds from sales of
investments 74 -
Net cash provided by
(used in) investing
activities (47) 380
--- ---
Net cash used in
financing activities (610) (1,112)
---- ------
Change in cash and
cash equivalents (1) (633)
--- ----
Ending cash and cash
equivalents $4 $249
=== ====
(a) Includes capitalized interest of
$2 million and $2 million for
the three months ended March
31, 2018 and 2017,
respectively.
(b) Includes capitalized interest of
$41 million and $49 million for
the three months ended March
31, 2018 and 2017,
respectively.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF ADJUSTED NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
($ in millions except per share data)
(unaudited)
Three Months Ended March 31,
----------------------------
2018 2017
$ $/Share(b)(c) $ $/Share(b)(c)
--- ------------- --- -------------
Net income available to common
stockholders (GAAP) $268 $0.30 $75 $0.08
Effect of dilutive securities 36 -
Diluted earnings per common stockholder
(GAAP) $304 $0.29 $75 $0.08
Adjustments:
Unrealized (gains) losses on oil,
natural gas and NGL derivatives 119 0.11 (326) (0.36)
Restructuring and other termination
costs 38 0.04 - -
Provision for legal contingencies, net 5 - (2) -
Other operating expense - - 391 0.43
Net losses on sales of fixed assets 8 0.01 - -
Gains on investments (139) (0.13) - -
Losses on purchases or exchanges of
debt - - 7 0.01
Loss on exchange of preferred stock - - 41 0.05
Other 1 - 2 -
--- ---
Adjusted net income available to common
stockholders(b) (Non-GAAP) 336 0.32 188 0.21
--- ---- --- ----
Preferred stock dividends 23 0.02 23 0.02
Earnings allocated to participating
securities 2 - 1 -
--- --- --- ---
Total adjusted net income attributable
to Chesapeake(b) (c) (Non-GAAP) $361 $0.34 $212 $0.23
==== ===== ==== =====
(a) Our effective tax
rate in the three
months ended
March 31, 2018
was 0%. Due to
our valuation
allowance
position, no
income tax effect
from the
adjustments has
been included in
determining
adjusted net
income for the
three months
ended March 31,
2017.
(b) Adjusted net
income (loss)
available to
common
stockholders and
total adjusted
net income (loss)
attributable to
Chesapeake, both
in the aggregate
and per dilutive
share, are not
measures of
financial
performance under
GAAP, and should
not be considered
as an alternative
to, or more
meaningful than,
net income (loss)
available to
common
stockholders or
earnings (loss)
per share.
Adjusted net
income (loss)
available to
common
stockholders and
adjusted earnings
(loss) 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 (loss) 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 (loss)
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.
Because adjusted
net income (loss)
available to
common
stockholders and
total adjusted
net income (loss)
attributable to
Chesapeake
exclude some, but
not all, items
that affect net
income (loss)
available to
common
stockholders and
total adjusted
net income (loss)
attributable to
Chesapeake may
vary among
companies, our
calculation of
adjusted net
income (loss)
available to
common
stockholders and
total adjusted
net income (loss)
attributable to
Chesapeake may
not be comparable
to similarly
titled financial
measures of other
companies.
(c) Our presentation
of diluted net
income (loss)
available to
common
stockholders and
diluted adjusted
net income (loss)
per share
excludes 60
million and 208
million shares
considered
antidilutive for
the three months
ended March 31,
2018 and 2017,
respectively. The
number of shares
used for the non-
GAAP calculation
was determined in
a manner
consistent with
GAAP.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF OPERATING CASH FLOW AND EBITDA
($ in millions)
(unaudited)
==========
Three Months Ended
March 31,
---------
2018 2017
---- ----
CASH PROVIDED BY OPERATING ACTIVITIES (GAAP) $656 $99
Changes in components of working capital and
other assets and liabilities (104) (113)
OPERATING CASH FLOW (Non-GAAP)(a) $552 $(14)
==== ====
Three Months Ended
March 31,
---------
2018 2017
---- ----
NET INCOME (GAAP) $294 $141
Interest expense 123 95
Income tax expense - 1
Depreciation and amortization of other assets 18 21
Oil, natural gas and NGL depreciation,
depletion and amortization 268 197
EBITDA (Non-GAAP)(b) $703 $455
==== ====
Three Months Ended
March 31,
---------
2018 2017
---- ----
CASH PROVIDED BY OPERATING ACTIVITIES (GAAP) $656 $99
Changes in assets and liabilities (104) (113)
Interest expense, net of unrealized gains
(losses) on derivatives 123 93
Gains (losses) on oil, natural gas and NGL
derivatives, net (117) 322
Cash (receipts) payments on derivative
settlements, net (13) 34
Stock-based compensation (9) (11)
Net losses on sales of fixed assets (8) -
Gains on investments 139 -
Losses on purchases or exchanges of debt - (6)
Other items 36 37
--- ---
EBITDA (Non-GAAP)(b) $703 $455
==== ====
(a) Operating cash flow represents net cash
provided by operating activities before
changes in components of working capital
and other. Operating cash flow is
presented because management believes it
is a useful adjunct to net cash provided
by operating activities under GAAP and
provides useful information to investors
for analysis of the Company's ability to
generate cash to fund exploration and
development, and to service debt.
Operating cash flow is widely accepted as
a financial indicator of an oil and
natural gas company's ability to generate
cash that is used to internally fund
exploration and development activities and
to service debt. This measure is widely
used by investors and rating agencies in
the valuation, comparison, rating and
investment recommendations of companies
within the oil and natural gas exploration
and production industry. Operating cash
flow is not a measure of financial
performance under GAAP and should not be
considered as an alternative to cash flows
from operating activities as an indicator
of cash flows, or as a measure of
liquidity. Because operating cash flow
excludes some, but not all, items that
affect net cash provided by operating
activities and may vary among companies,
our calculation of operating cash flow may
not be comparable to similarly titled
measures of other companies. The increase
in operating cash flow for the three
months ended March 31, 2018 is mainly due
to an increase in prices and volumes.
(b) EBITDA represents net income before
interest expense, income tax expense, 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 (or
liquidity) under GAAP. Accordingly, it
should not be considered as a substitute
for net income, income from operations or
cash flows from operating activities
prepared in accordance with GAAP.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF ADJUSTED EBITDA
($ in millions)
(unaudited)
Three Months Ended
March 31,
---------
2018 2017
---- ----
EBITDA (Non-GAAP) $703 $455
Adjustments:
Unrealized losses
(gains) on oil, natural
gas and NGL derivatives 119 (326)
Restructuring and other
termination costs 38 -
Provision for legal
contingencies, net 5 (2)
Other operating expense - 391
Net losses on sales of
fixed assets 8 -
Gains on investments (139) -
Losses on purchases or
exchanges of debt - 7
Net income attributable
to noncontrolling
interests (1) (1)
Other - 1
--- ---
Adjusted EBITDA (Non-
GAAP)(a) $733 $525
==== ====
(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. Because adjusted EBITDA excludes some, but not all, items that affect net income (loss from continuing operations) attributable to common stockholders, our calculations of adjusted EBITDA may not be comparable to similarly titled measures of other companies.
CHESAPEAKE ENERGY CORPORATION
MANAGEMENT'S OUTLOOK AS OF MAY 1, 2018
Chesapeake periodically provides guidance on certain factors that
affect the company's future financial performance. New
information or changes from the company's February 22, 2018
outlook are italicized bold below.
Year Ending
12/31/2018
----------
Production Growth adjusted
for asset sales(a) 1% to 5%
Absolute Production
Liquids - mmbbls 51.0 - 55.0
Oil - mmbbls 31.0 - 33.0
NGL - mmbbls 20.0 - 22.0
Natural gas - bcf 825 - 875
Total absolute production
-mmboe 190 - 200
Absolute daily rate - mboe 515 - 550
Estimated Realized Hedging Effects(b) (based on 4/27/18 strip
prices):
Oil - $/bbl ($10.20)
Natural gas - $/mcf $0.13
NGL - $/bbl $(0.13)
Estimated Basis to NYMEX Prices:
Oil - $/bbl $1.00 - $1.20
Natural gas - $/mcf ($0.10) - ($0.20)
NGL - $/bbl ($5.20) - ($5.60)
Operating Costs per Boe of Projected Production:
Production expense $2.60 - $2.80
Gathering, processing and
transportation expenses $6.95 - $7.65
Oil - $/bbl $3.90 - $4.10
Natural Gas - $/mcf $1.25 - $1.40
NGL - $/bbl $7.85 - $8.25
Production taxes $0.50 - $0.60
General and
administrative(c) $1.25 - $1.35
Stock-based compensation
(noncash) $0.10 - $0.20
DD&A of natural gas and
liquids assets $5.00 - $6.00
Depreciation of other
assets $0.35 - $0.45
Interest expense(d) $2.40 - $2.60
Marketing net margin(e) ($60) - ($40)
Book Tax Rate 0%
Adjusted EBITDA, based on
4/27/18 strip prices ($
in millions)(f) $2,250 - $2,450
Capital Expenditures ($ in
millions)(g) $1,800 - $2,200
Capitalized Interest ($ in
millions) $175
Total Capital Expenditures
($ in millions) $1,975 - $2,375
(a) Based on 2017 production of 514 mboe
per day, adjusted for 2017 asset
sales and 2018 asset sales signed
to date.
(b) Includes expected settlements for
oil, natural gas and NGL
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, which
are recorded in general and
administrative expenses in
Chesapeake's Consolidated Statement
of Operations.
(d) Excludes unrealized gains (losses)
on interest rate derivatives.
(e) Excludes non-cash amortization of
approximately $19 million.
(f) Adjusted EBITDA is a non-GAAP
measure used by management to
evaluate the company's operational
trends and performance relative to
other oil and natural gas producing
companies. Adjusted EBITDA excludes
certain items that management
believes affect the comparability
of operating results. The most
directly comparable GAAP measure is
net income but, it is not possible,
without unreasonable efforts, to
identify the amount or significance
of events or transactions that may
be included in future GAAP net
income but that management does not
believe to be representative of
underlying business performance.
The company further believes that
providing estimates of the amounts
that would be required to reconcile
forecasted adjusted EBITDA to
forecasted GAAP net income would
imply a degree of precision that
may be confusing or misleading to
investors. Items excluded from net
income to arrive at adjusted EBITDA
include interest expense, income
taxes, and depreciation, depletion
and amortization expense as well as
one-time items or items whose
timing or amount cannot be
reasonably estimated.
(g) Includes capital expenditures for
drilling and completion, leasehold,
geological and geophysical costs,
rig termination payments and other
property, plant and equipment.
Excludes any additional proved
property acquisitions.
Oil, Natural Gas and Natural Gas Liquids Hedging Activities
Chesapeake enters into oil, natural gas and NGL 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 April 27, 2018, including April and May derivative contracts that have settled, the company had downside price protection on a portion of its 2018 oil, natural gas and natural gas liquids production. The company had downside oil price protection through swaps at an average price of $53.78 per bbl, and under three-way collar arrangements based on an average bought put NYMEX price of $47.00 per bbl and exposure below an average sold put NYMEX price of $39.15 per bbl. The company had downside gas price protection through swaps and two-way collars at an average price of $2.96 per mcf. Chesapeake also had downside ethane, propane, butane, isobutane and natural gasoline price protection through swaps at an average price of $0.28, $0.78, $0.88, $0.92 and $1.42 per gallon (as well as a portion of butane at 70.5 percent of WTI), respectively. Further details summarized below.
In addition, the company had downside protection, through open swaps on a portion of its 2019 oil production at an average price of $57.87 per bbl. The company also initiated downside protection on a portion of its 2019 gas production under three-way collar arrangements based on an average bought put NYMEX price of $2.80 per mcf and exposure below an average sold put NYMEX price of $2.50 per mcf.
The company's crude oil hedging positions were as follows:
Crude Oil Swaps
Gains (Losses) from Closed Crude Oil Trades
Swaps Avg. NYMEX Gains/Losses
from Closed
(mbbls) Price of Trades
Swaps ($ in
millions)
----- ----------
Q2 2018 5,886 $52.80 $(1)
Q3 2018 5,612 $54.30 (1)
Q4 2018 5,612 $54.30 (1)
-----
Total 2018 17,110 $53.78 $(3)
====== ====== ===
Total 2019 11,661 $57.87 $(8)
====== ====== ===
Crude Oil Net Written Call Options
Call Options Avg. NYMEX
(mbbls) Strike Price
------ ------------
Q3 2018 920 $52.87
Q4 2018 920 $52.87
--- ------
Total 2018 1,840 $52.87
===== ======
Crude Oil Three-Way Collars
Collars Avg. NYMEX Avg. NYMEX Avg. NYMEX
(mbbls) Sold Put Price Bought Put Price Sold Call
Price
------ -------------- ---------------- ----------
Q2
2018 455 $39.15 $47.00 $55.00
Q3
2018 460 $39.15 $47.00 $55.00
Q4
2018 460 $39.15 $47.00 $55.00
--- ------ ------
Total
2018 1,375 $39.15 $47.00 $55.00
===== ====== ====== ======
Oil Basis Protection Swaps
Volume Avg. NYMEX
(mbbls) plus/(minus)
------ ------------
Q2 2018 2,639 $3.21
Q3 2018 2,760 $3.42
Q4 2018 2,760 $3.42
----- -----
Total 2018 8,159 $3.35
===== =====
The company's natural gas hedging positions were as follows:
Natural Gas Swaps
Losses from Closed Natural Gas Trades
Swaps Avg. NYMEX Losses
(bcf) Price of from Closed
Trades
Swaps
($ in
millions)
----------
Q2
2018 118 $2.92 $(4)
Q3
2018 120 $2.94 (4)
Q4
2018 120 $3.00 (6)
--- -----
Total
2018 358 $2.95 $(14)
=== ===== ====
Total
2019
-
2022 $(49)
====
Natural Gas Two-Way Collars
Collars Avg. NYMEX Avg. NYMEX
(bcf) Bought Put Price Sold Call Price
---- ---------------- ---------------
Q2 2018 12 $3.00 $3.25
Q3 2018 12 $3.00 $3.25
Q4 2018 12 $3.00 $3.25
--- ----- -----
Total 2018 36 $3.00 $3.25
=== ===== =====
Natural Gas Three-Way Collars
Collars Avg. NYMEX Avg. NYMEX Avg. NYMEX
(bcf) Sold Put Price Bought Put Price Sold Call Price
---- -------------- ---------------- ---------------
Total
2019 87 $2.50 $2.80 $3.10
=== ===== ===== =====
Natural Gas Net Written Call Options
Call Options Avg. NYMEX
(bcf) Strike Price
---- ------------
Q2 2018 16 $6.27
Q3 2018 17 $6.27
Q4 2018 17 $6.27
--- -----
Total 2018 50 $6.27
=== =====
Total 2019 - 2020 44 $12.00
=== ======
Natural Gas Basis Protection Swaps
Volume Avg. NYMEX
plus/(minus)
(bcf)
----
Q2 2018 18 $(0.77)
Q3 2018 17 $(0.77)
Q4 2018 6 $(0.77)
--- ------
Total 2018 41 $(0.77)
=== ======
Total 2019 4 $2.24
=== =====
The company's natural gas liquids hedging positions were as follows:
Ethane Swaps
Volume Avg. NYMEX
Price of Swaps
(mmgal)
------
Q2 2018 4 $0.28
--- -----
Total 2018 4 $0.28
=== =====
Propane Swaps
Volume Avg. NYMEX
Price of
Swaps
(mmgal)
------
Q2 2018 12 $0.78
Q3 2018 15 $0.79
Q4 2018 15 $0.79
--- -----
Total 2018 42 $0.79
=== =====
Butane Swaps
Volume Avg. NYMEX
Price of Swaps
(mmgal)
------
Q2 2018 1 $0.88
Q3 2018 1 $0.88
Q4 2018 2 $0.88
--- -----
Total 2018 4 $0.88
=== =====
Butane Swaps Priced as a Percentage of WTI
Volume Avg. NYMEX as a
% of WTI Swaps
(mmgal)
------
Q2 2018 1 70.5%
Q3 2018 1 70.5%
Q4 2018 2 70.5%
--- ----
Total 2018 4 70.5%
=== ====
Iso-Butane Swaps
Volume Avg. NYMEX
Price of Swaps
(mmgal)
------
Q2 2018 2 $0.92
Q3 2018 4 $0.92
Q4 2018 4 $0.92
--- -----
Total 2018 10 $0.92
=== =====
Natural Gasoline Swaps
Volume Avg. NYMEX
Price of
Swaps
(mmgal)
------
Q2 2018 10 $1.42
Q3 2018 11 $1.42
Q4 2018 12 $1.42
--- -----
Total 2018 33 $1.42
=== =====
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SOURCE Chesapeake Energy Corporation
