Chesapeake Energy Corporation Reports 2019 Second Quarter Financial And Operational Results
OKLAHOMA CITY, Aug. 6, 2019 /PRNewswire/ -- Chesapeake Energy Corporation (NYSE:CHK) today reported financial and operational results for the 2019 second quarter. Highlights include:
-- Increasing Oil Production, Enhancing Capital Efficiency, Growing Margins
and Progressing Toward Sustainable Free Cash Flow
-- Delivered record oil production of 122,000 barrels (bbls) of oil per
day, year-over-year growth of 36%, or 10% adjusted for asset
purchases and sales; record oil mix of 25%
-- Operating cost reductions further enhance margins
-- Reduced cash operating expenses consisting of production,
gathering, processing and transportation (GP&T) and general and
administrative expenses by $57 million, or approximately $0.40
per barrel of oil equivalent (boe), when compared to the prior
year quarter
-- Highest second quarter operating margin per boe since 2014
-- Capital efficiency improvements redefine economics of Brazos Valley
assets
-- Projected 2019 total savings of $250 to $280 million; eliminated
approximately $600,000 in costs per well; recognized up to $2
million in savings on certain wells
-- Accelerating cycle times, with approximately 45 oil wells
planned to be placed to sales in the second half of 2019
compared to 28 wells in the first half
-- Expanded Eagle Ford higher-margin black oil window by
approximately 230 locations
-- Maximizing Value of Diverse Portfolio Through Returns-Focused Capital
Allocation
-- Maintaining oil growth trajectory on flat capital
-- Oil production poised to increase in the second half of 2019 as
~170 oil wells expected to be placed to sales, an increase of
approximately 50% over the first half of 2019
-- Projected to grow oil production by double-digits in 2020 on
approximately flat year-over-year capex, yielding approximately
flat adjusted EBITDAX at current NYMEX strip pricing and current
hedge position
-- Reducing capital allocation to gas assets, forecasting
double-digit gas decline in 2020
-- Prudently Managing Maturities to Maintain Future Liquidity
-- Exchanged $884 million senior notes maturing 2020 through 2021 into
new senior notes maturing 2026
-- Reduced maturities prior to 2022 to approximately $600 million
-- $1.6 billion of liquidity available under the Chesapeake parent
credit facility
-- Approximately 85% of 2019 forecasted oil, natural gas and NGL
revenue hedged at prices significantly above the current strip
Doug Lawler, Chesapeake's President and Chief Executive Officer, commented, "Driven by the integration of our Brazos Valley asset, steady growth from the PRB and improved base production performance from South Texas and the Mid-Continent, Chesapeake produced approximately 122,000 barrels of oil per day, the highest quarterly oil production in the company's history, and oil production comprised approximately 25% of our total production mix, also a company record. As highlighted above, we have a significant oil growth runway in 2019 and accordingly, we are raising the mid-point of our full-year oil production guidance by approximately 250,000 barrels. In addition, our focus on cash cost leadership has resulted in reducing our full-year guidance for GP&T and production expenses. We believe the trajectory of our oil volume growth and related higher-margin cash flow from those volumes will move higher as we enter 2020.
"As we formulate our initial 2020 plans, we expect to allocate more capital to oil growth areas, with less capital going toward our gas assets. As a result, with an approximately flat capital program to 2019, we project our 2020 oil volumes will show double-digit percentage growth over 2019, while our gas volumes will show a double-digit percentage decline, yet our projected adjusted EBITDAX remains approximately the same at 2019 levels using today's lower NYMEX strip pricing and current hedge position. We look forward to driving further value from our scale, diverse portfolio and capital discipline in 2020 and beyond."
2019 Second Quarter Results
For the 2019 second quarter, Chesapeake reported net income of $98 million and net income available to common stockholders of $75 million, or $0.05 per diluted share. Adjusting for items typically excluded by securities analysts, the 2019 second quarter adjusted net loss attributable to Chesapeake was $158 million or $0.10 per share while adjusted EBITDAX was $612 million. Reconciliations of financial measures calculated in accordance with GAAP to non-GAAP measures are provided on pages 15-19 of this release.
Average daily production for the 2019 second quarter was approximately 496,000 boe and consisted of approximately 122,000 bbls of oil, 2.034 billion cubic feet (bcf) of natural gas and 35,000 bbls of natural gas liquids (NGL). Average daily production for the 2018 second quarter was approximately 530,000 boe and consisted of approximately 90,000 bbls of oil, 2.311 bcf of natural gas and 55,000 bbls of NGL. Oil production represented approximately 25% of the company's 2019 second quarter aggregate production compared to 17% in the 2018 second quarter.
Despite lower average prices for our oil, natural gas and NGL sold, Chesapeake's cash margins increased significantly in the 2019 second quarter compared to the 2018 second quarter, primarily due to a higher oil production mix and a decrease in GP&T and general and administrative expenses. Chesapeake reduced its cash operating expenses on an absolute basis by $57 million, or approximately $0.40 per boe.
Capital Spending Overview
Chesapeake invested total capital expenditures of approximately $559 million during the 2019 second quarter, including capitalized interest of $6 million, compared to approximately $530 million in the 2018 second quarter. The increase in capital expenditures in the 2019 second quarter was largely attributable to an increase in net wells spud, completed and connected. See tables below for a summary of activity and expenditures.
Three Months Ended
June 30,
2019 2018
Net Gross Net Gross
Operated
activity
comparison
Average rig
count 13 18 12 17
Wells spud 67 92 56 79
Wells
completed 70 92 56 85
Wells
connected 65 85 63 96
Three Months Ended
June 30,
2019 2018
Type of cost ($
in millions)
Drilling and
completion
capital
expenditures $
526 $
513
Leasehold and
additions to
other PP&E 27 12
Subtotal capital
expenditures $
553 $
525
Capitalized
interest 6 5
Total capital
expenditures $
559 $
530
Balance Sheet and Liquidity
As of June 30, 2019, Chesapeake's principal amount of debt outstanding inclusive of Brazos Valley debt was approximately $10.161 billion, compared to $8.168 billion as of December 31, 2018. The increase in debt outstanding was largely a result of $1.375 billion in debt assumed by Chesapeake and the $353 million of net cash consideration paid as part of the WildHorse acquisition on February 1, 2019. As of June 30, 2019, the company had borrowed $1.372 billion under the $3.0 billion Chesapeake credit facility, utilized approximately $54 million for various letters of credit and had additional borrowing capacity of approximately $1.574 billion. Under the $1.3 billion Brazos Valley credit facility, the company had borrowed $686 million and had additional borrowing capacity of approximately $614 million. The borrowing bases of both credit facilities were re-affirmed in May 2019 with the next re-determination dates scheduled for the 2019 fourth quarter.
During the 2019 second quarter, Chesapeake exchanged approximately $919 million of new 8.0% Senior Notes due 2026 for approximately $884 million aggregate principal amount of its Senior Notes due 2020 and 2021 and repaid approximately $380 million of its Floating Rate Senior Notes due 2019 at maturity. As a result, Chesapeake currently has remaining maturities in 2020 and 2021 of $301 million and $294 million, respectively.
Chesapeake has protected a significant amount of its remaining 2019 revenue through hedging. As of July 31, 2019, including July and August derivative contracts that have settled, approximately 85% of the company's remaining 2019 forecasted oil, natural gas and NGL production revenue was hedged, including approximately 79% and 78% of its remaining 2019 forecasted oil and natural gas production at average prices of $59.38 per bbl and $2.83 per thousand cubic feet (mcf), respectively. Additionally, Chesapeake has basis protection on approximately 4.1 million barrels (mmbbls) of its remaining projected 2019 Eagle Ford oil production at a premium to WTI of approximately $5.85 per bbl.
In 2020, Chesapeake currently has downside protection on approximately 14.8 mmbbls of its projected oil production at an average price of $59.93 per bbl and on approximately 264.7 bcf of its projected gas production at an average price of $2.76 per mcf.
Operations Update
Chesapeake's average daily production for the 2019 second quarter was approximately 496,000 boe compared to approximately 530,000 boe in the 2018 second quarter. The following tables show average daily production and average sales prices received (excluding gains/losses on derivatives) by the company's operating areas for the 2019 and 2018 second quarters.
Three Months Ended June 30, 2019
Oil Natural Gas NGL
Total
mbbl
$/bbl mmcf
$/mcf mbbl
$/bbl mboe %
$/boe
per day per day per day per day
Marcellus - 929 2.33 155 31 13.99
Haynesville - 751 2.39 125 25 14.36
Eagle Ford 58 65.82 152 2.69 19 12.78 102 21 43.89
Brazos Valley 35 63.34 55 1.81 5 9.33 49 10 47.57
Powder River
Basin 20 57.05 89 2.26 5 16.30 40 8 35.58
Mid-Continent 9 58.12 59 2.03 6 16.97 25 5 30.53
Retained
assets(a) 122 63.09 2,035 2.35 35 13.50 496 100 26.13
Divested assets (1) 4.66
Total 122 63.04 2,034 2.35 35 13.43 496 100
% 26.12
Three Months Ended June 30, 2018
Oil Natural Gas NGL
Total
mbbl
$/bbl mmcf
$/mcf mbbl
$/bbl mboe %
$/boe
per day per day per day per day
Marcellus - 805 2.31 134 25 13.85
Haynesville - 829 2.63 139 26 15.80
Eagle Ford 61 70.52 143 3.22 19 26.58 103 20 50.70
Powder River
Basin 8 67.37 57 2.18 4 27.12 22 4 36.78
Mid-Continent 10 66.77 64 2.38 5 24.41 25 5 36.74
Retained
assets(a) 79 69.70 1,898 2.52 28 26.29 423 80 26.03
Divested assets 11 63.50 413 2.76 27 25.18 107 20 23.68
Total 90 68.92 2,311 2.56 55 25.74 530 100
% 25.56
(a) Includes assets
retained as of June
30, 2019.
Brazos Valley: Driving significant capital efficiencies, business unit expected to be free cash flow positive in 2019
Chesapeake has driven significant changes and improvements through the first six months of its ownership of the Brazos Valley asset, which was acquired on February 1, 2019. Since taking over daily operations, Chesapeake has realized savings of approximately $600,000 per well, with savings of up to $2 million per well on certain individual wells, compared to the previous operator due to better drilling and completion techniques, faster cycle times and lower oilfield service costs.
The company is currently utilizing four rigs in the Brazos Valley area, placed 24 wells on production (four Austin Chalk gas wells and 20 Eagle Ford oil wells) during the 2019 second quarter and expects to place 26 wells, all in the Eagle Ford oil window, on production during the 2019 third quarter. In 2019, the company has already placed 10 wells to sales that have reached maximum 24-hour production rates of more than 900 bbls of oil per day, compared to three wells that reached that level in the same time period in 2018. Of those 10 wells, seven wells have reached maximum 24-hour production rates of more than 1,000 bbls of oil per day. All but one of these wells incorporated Chesapeake's new enhanced flow back techniques. These results, combined with stronger base production, have resulted in production that has exceeded the company's internal expectations since the acquisition.
Additionally, Chesapeake has redefined its understanding of the fluid windows on the acreage, resulting in a larger Eagle Ford oil window than originally thought. The expansion of the black oil window, based on subsurface analytics and validated by production data from wells drilled in the 2019 first quarter, increased the company's confidence of approximately 230 additional locations in the black oil window. With an expected higher oil cut from these locations, the economics of these wells are projected to be significantly stronger when compared to the company's wells in the volatile oil window or dry gas window areas of the play.
Chesapeake is evaluating options to be a shipper on a crude pipeline that will deliver the company's Brazos Valley oil volumes into the Houston, Texas market beginning in the 2020 fourth quarter. Chesapeake is also pursuing a new gathering agreement in the area that would reduce the current reliance on trucking oil volumes and improve its cost structure in the region. The company expects to have this new gathering agreement in place for the operating area during the second half of 2019.
Eagle Ford Shale: Stronger base production exceeds internal forecasts
In the company's Eagle Ford Shale position in South Texas, base production performance has been strong due to adjusted well-spacing and optimized completion designs. Chesapeake's operated sales volumes were affected by planned third-party processing plant maintenance, which reduced sales volumes for approximately one week in June, yet the business unit was still able to exceed internal forecasts for the quarter due to its stronger base production. Chesapeake is currently utilizing four rigs in the area, which were located on large ranch projects during the 2019 second quarter. As a result, 17 wells were placed on production during the 2019 second quarter and the pace will accelerate to 42 wells to be placed on production during the 2019 third quarter as these larger projects are completed.
Powder River Basin: Steadily growing high-margin oil production
In the PRB, where the company moved a sixth rig in April 2019, Chesapeake placed 16 wells on production during the 2019 second quarter and expects to place 26 wells on production during the 2019 third quarter. Development in the Turner formation continues on pace and the field's gas-to-oil ratio is moving lower as more wells are focused on the oil window. Appraisal well results continue to expand field limits, including the company's first "wine rack" test in the western portion of the Turner area in an attempt to better access stacked pays. Chesapeake recently completed the first new Niobrara well in the northern area of the field since 2014 and production testing will take place in August 2019, with two more Niobrara wells planned for later in the year. The company's first Mowry volatile oil window test is also scheduled for later in 2019.
In the 2019 second quarter, Chesapeake connected its first pads into a new oil gathering pipeline system that transports volumes to Guernsey, Wyoming. New and existing pads across the field are being connected to the gathering system weekly, resulting in meaningful GP&T expense savings going forward. As a result, more than 50% of the company's produced PRB oil is now flowing on the gathering system and is expected to grow up to 75% in the second half of the year. Also during the quarter, Chesapeake secured transportation that allows its PRB oil volumes to receive Gulf Coast pricing. Beginning in the 2020 fourth quarter, the company expects to be able to deliver certain oil volumes on a pipeline system, which has the ability to access both markets in Cushing, Oklahoma and Corpus Christi, Texas.
Marcellus Shale: Improving capital efficiency through disciplined capital spending
Chesapeake continues to create significant free cash flow in the Marcellus Shale in northeast Pennsylvania, driven by strong new well performance as a result of refined spacing, longer laterals and optimized completion designs. These capital efficient volumes, coupled with base production strength and access to better realized in-basin pricing, continue to make this a strong free cash flow generator for Chesapeake. The company is currently utilizing two drilling rigs, placed 14 wells on production during the 2019 second quarter and expects to place 12 wells on production during the 2019 third quarter. The company expects to keep its gas-weighted capital spending at prudent levels in 2020, including in its Marcellus operating area. At the current activity level, Chesapeake has approximately 10 years of drilling inventory at a break-even of $1.50 to $1.75/mcf.
Haynesville Shale: Focused on optimizing base production
In the Haynesville Shale in Louisiana, Chesapeake is currently operating one rig, placed nine wells on production during the 2019 second quarter and expects to place five wells on production during the 2019 third quarter. The company currently expects to reduce its Haynesville Shale dry gas area rig count to zero in the near future.
Mid-Continent: Capital allocated to higher-return areas, high-graded program focused on 2020 activity
In the company's Mid-Continent operating area in Oklahoma, Chesapeake placed five wells on production during the 2019 second quarter. The company dropped its only operated rig in April 2019 and expects to place no more wells on production through the end of the year.
Key Financial and Operational Results
The table below summarizes Chesapeake's key financial and operational results during the 2019 second quarter as compared to results in prior periods. The three months ended June 30, 2019 include Brazos Valley operations. The three months ended June 30, 2018 do not include Brazos Valley operations.
Three Months Ended
June 30,
2019 2018
Barrels of oil equivalent
production (in mboe) 45,165 48,263
Barrels of oil equivalent
production (mboe/d) 496 530
Oil production (in mbbl/d) 122 90
Average realized oil price
($/bbl)(a) 61.44 57.16
Natural gas production (in
mmcf/d) 2,034 2,311
Average realized natural gas
price ($/mcf)(a) 2.48 2.64
NGL production (in mbbl/d) 35 55
Average realized NGL price
($/bbl)(a) 13.43 24.97
Production expenses ($/boe) 3.68 2.86
Gathering, processing and
transportation expenses
($/boe) 6.00 7.04
Oil - ($/bbl) 2.42 3.22
Natural Gas -($/mcf) 1.23 1.29
NGL - ($/bbl) 5.01 8.46
Production taxes ($/boe) 0.88 0.55
Exploration expenses ($ in
millions) 15 20
General and administrative
expenses ($/boe)(b) 1.79 1.98
General and administrative
expenses (stock-based
compensation) (non-cash)
($/boe) 0.20 0.19
Depreciation, depletion, and
amortization ($/boe) 12.84 9.74
Interest expense ($/boe)(c) 3.85 3.21
Marketing net margin ($ in
millions)(d) (19) (14)
Net cash provided by operating
activities ($ in millions) 397 363
Net cash provided by operating
activities ($/boe) 8.79 7.52
Net income (loss) ($ in
millions) 98 (249)
Net income (loss) available to
common stockholders ($ in
millions) 75 (272)
Net income (loss) per share
available to common
stockholders - diluted ($) 0.05 (0.30)
Adjusted EBITDAX ($ in
millions)(e) 612 518
Adjusted EBITDAX ($/boe) 13.55 10.73
Adjusted net loss attributable
to Chesapeake ($ in
millions)(f) (158) (118)
Adjusted net loss attributable
to Chesapeake per share -
diluted ($)(g) (0.10) (0.13)
(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) Includes the effects of realized
(gains) losses from interest rate
derivatives, excludes the effects
of unrealized (gains) losses from
interest rate derivatives and is
shown net of amounts capitalized.
(d) Marketing net margin is marketing
gross margin of ($24) million and
($19) million for the three months
ended June 30, 2019 and 2018,
excluding non-cash amortization of
$5 million related to the buy down
of a transportation agreement.
(e) Defined as net income (loss) before
interest expense, income taxes,
depreciation, depletion and
amortization expense, and
exploration expense, as adjusted to
remove the effects of certain items
detailed on page 19. This is a non-
GAAP measure. See reconciliation of
cash provided by operating
activities to adjusted EBITDAX on
page 18.
(f) Defined as net income (loss)
attributable to Chesapeake, as
adjusted to remove the effects of
certain items detailed on page 15.
This is a non-GAAP measure. See
reconciliations of net income
(loss) to adjusted net income
(loss) available to Chesapeake on
pages 15 - 17.
(g) Our presentation of diluted adjusted
net loss attributable to Chesapeake
per share excludes 207 million
shares for the three months ended
June 30, 2019 and 2018, which are
considered antidilutive when
calculating diluted earnings per
share.
2019 Second Quarter Financial and Operational Results Conference Call Update
The conference call to discuss the company's financial and operational results has been scheduled on Tuesday, August 6 at 9:00 am EDT. The telephone number to access the conference call is 1-888-317-6003 or 1-412-317-6061 for international callers. The passcode for the call is 6482113. The conference call will be webcast and can be found at www.chk.com in the "Investors" section of the company's website.
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, expected lateral lengths of wells, anticipated timing and number of wells to be placed into production, anticipated timing of the Brazos Valley business unit becoming cash flow positive, expected oil growth trajectory, anticipated timing of execution of new gathering agreement, expected oil volume growth in connection with new oil gathering system and pipeline system, general and administrative expenses, capital expenditures, 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.
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in millions except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---
2019 2018* 2019 2018*
---
REVENUES AND OTHER:
Oil, natural gas and NGL(a) $
1,454 $
982 $
2,383 $
2,225
Marketing 916 1,273 2,149 2,519
Total Revenues 2,370 2,255 4,532 4,744
Other 15 16 30 32
Gains on sales of assets 1 18 20 37
Total Revenues and Other 2,386 2,289 4,582 4,813
OPERATING EXPENSES:
Oil, natural gas and NGL production 166 138 298 285
Oil, natural gas and NGL gathering,
processing and transportation 271 340 545 696
Production taxes 40 26 74 57
Exploration 15 20 39 101
Marketing 940 1,292 2,170 2,560
General and administrative 89 105 192 192
Restructuring and other termination
costs - 38
Provision for legal contingencies, net 3 4 3 9
Depreciation, depletion and
amortization 580 471 1,099 930
Impairments 1 54 2 64
Other operating (income) expense 3 (1) 64 (1)
Total Operating Expenses 2,108 2,449 4,486 4,931
INCOME (LOSS) FROM OPERATIONS 278 (160) 96 (118)
OTHER INCOME (EXPENSE):
Interest expense (175) (155) (336) (317)
Gains (losses) on investments (23) (24) 139
Other income 18 57 27 56
Total Other Expense (180) (98) (333) (122)
INCOME (LOSS) BEFORE INCOME TAXES 98 (258) (237) (240)
Income tax benefit - (9) (314) (9)
NET INCOME (LOSS) 98 (249) 77 (231)
Net income attributable to
noncontrolling interests - (1)
NET INCOME (LOSS) ATTRIBUTABLE TO
CHESAPEAKE 98 (249) 77 (232)
Preferred stock dividends (23) (23) (46) (46)
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS $
75 $
(272) $
31 $
(278)
EARNINGS (LOSS) PER COMMON SHARE:
Basic $
0.05 $
(0.30) $
0.02 $
(0.31)
Diluted $
0.05 $
(0.30) $
0.02 $
(0.31)
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING (in millions):
Basic 1,628 909 1,505 908
Diluted 1,628 909 1,505 908
* Financial information for 2018 has been
recast to reflect the retrospective
application of the successful efforts method
of accounting.
(a) See page 13 for a reconciliation
of oil, natural gas and NGL
revenue before and after the
effect of financial derivatives.
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
(unaudited)
June 30, 2019 December 31,
2018
---
Cash and cash
equivalents $
4 $
4
Other current assets 1,380 1,594
Total Current Assets 1,384 1,598
Property and
equipment, net 14,845 10,818
Other long-term
assets 311 319
Total Assets $
16,540 $
12,735
Current liabilities $
2,220 $
2,887
Long-term debt, net 9,701 7,341
Other long-term
liabilities 389 374
Total Liabilities 12,310 10,602
Preferred stock 1,671 1,671
Noncontrolling
interests 39 41
Common stock and other
stockholders' equity 2,520 421
Total Equity 4,230 2,133
Total Liabilities and
Equity $
16,540 $
12,735
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED CASH FLOW DATA
($ in millions)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---
2019 2018* 2019 2018*
---
Beginning cash and cash
equivalents $
8 $
4 $
4 $
5
Net cash provided by
operating activities 397 363 853 951
Cash flows from investing activities:
Drilling and completion
costs(a) (555) (508) (1,070) (928)
Business combination, net (353)
Acquisitions of proved and
unproved properties (11) (85) (17) (102)
Proceeds from divestitures
of proved and unproved
properties 56 65 82 384
Additions to other
property and equipment (9) (2) (18) (5)
Proceeds from sales of
other property and
equipment 3 6 4 74
Proceeds from sales of
investments 74
Net cash used in investing
activities (516) (524) (1,372) (503)
Net cash provided by (used
in) financing activities 115 160 519 (450)
Change in cash and cash
equivalents (4) (1) (2)
Ending cash and cash
equivalents $
4 $
3 $
4 $
3
* Financial information for 2018 has been
recast to reflect the retrospective
application of the successful efforts
method of accounting.
(a) Includes capitalized interest of
$6 million and $5 million for
the three months ended June 30,
2019 and 2018, respectively,
and includes capitalized
interest of $12 million and $9
million for the six months
ended June 30, 2019 and 2018,
respectively.
CHESAPEAKE ENERGY CORPORATION
SUPPLEMENTAL DATA - OIL, NATURAL GAS AND NGL PRODUCTION AND SALES PRICES
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---
2019 2018 2019 2018
---
Net Production:
Oil (mmbbl) 11 8 21 16
Natural gas (bcf) 185 210 367 432
NGL (mmbbl) 3 5 7 10
Oil equivalent (mmboe) 45 48 89 98
Average daily production
(mboe) 496 530 490 542
Oil, Natural Gas and NGL Sales ($ in
millions):
Oil sales $
700 $
567 $
1,266 $
1,104
Natural gas sales 436 538 1,031 1,244
NGL sales 43 128 112 245
Total oil, natural gas
and NGL sales $
1,179 $
1,233 $
2,409 $
2,593
Financial Derivatives:
Oil derivatives -
realized losses(a) $
(18) $
(97) $
(8) (161)
Natural gas derivatives -
realized gains
(losses)(a) 24 17 (12) 84
NGL derivatives -
realized losses(a) - (3) (4)
Total realized gains
(losses) on financial
derivatives $
6 $
(83) $
(20) $
(81)
Oil derivatives -
unrealized gains
(losses)(b) 104 (105) (165) (127)
Natural gas derivatives -
unrealized gains
(losses)(b) 165 (52) 159 (151)
NGL derivatives -
unrealized losses(b) - (11) (9)
Total unrealized gains
(losses) on financial
derivatives $
269 $
(168) $
(6) $
(287)
Total financial
derivatives $
275 $
(251) $
(26) $
(368)
Total oil, natural gas
and NGL sales $
1,454 $
982 $
2,383 $
2,225
Average Sales Price (excluding gains
(losses) on derivatives):
Oil ($ per bbl) $
63.04 $
68.92 $
60.59 $
66.76
Natural gas ($ per mcf) $
2.35 $
2.56 $
2.81 $
2.88
NGL ($ per bbl) $
13.43 $
25.74 $
16.86 $
25.60
Oil equivalent ($ per
boe) $
26.12 $
25.56 $
27.15 $
26.43
Average Sales Price (excluding
unrealized gains (losses) on
derivatives):
Oil ($ per bbl) $
61.44 $
57.16 $
60.23 $
57.03
Natural gas ($ per mcf) $
2.48 $
2.64 $
2.77 $
3.07
NGL ($ per bbl) $
13.43 $
24.97 $
16.86 $
25.16
Oil equivalent ($ per
boe) $
26.25 $
23.82 $
26.92 $
25.60
(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. 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) 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.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF ADJUSTED NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
($ in millions)
(unaudited)
Three Months Ended June 30,
2019 2018
$
$/Share
$
$/Share
---
Net income (loss) available to
common stockholders (GAAP) $
75 $
0.05 $
(272) $
(0.30)
Effect of dilutive securities -
Diluted earnings (losses)
available to common
stockholders (GAAP)(a) $
75 $
0.05 $
(272) $
(0.30)
Adjustments:
Unrealized (gains) losses on
oil, natural gas and NGL
derivatives (268) (0.16) 168 0.18
Provision for legal
contingencies, net 3 4
Gains on sales of assets (1) (18) (0.02)
Other operating (income)
expense 3 (1)
Impairments 1 54 0.06
Losses on investments 23 0.01
Other revenue (VPP deferred
revenue) (15) (0.01) (16) (0.02)
Other (2) (60) (0.06)
Income tax benefit(b) -
Adjusted net loss available to
common stockholders(c) (Non-
GAAP) (181) (0.11) (141) (0.16)
Preferred stock dividends 23 0.01 23 0.03
Earnings allocated to
participating securities -
Total adjusted net loss
attributable to
Chesapeake(a)(c) (Non-GAAP) $
(158) $
(0.10) $
(118) $
(0.13)
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF ADJUSTED NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
($ in millions)
(unaudited)
Six Months Ended June 30,
2019 2018
$
$/Share
$
$/Share
---
Net income (loss) available to
common stockholders (GAAP) $
31 $
0.02 $
(278) $
(0.31)
Effect of dilutive securities -
Diluted earnings (losses)
available to common
stockholders (GAAP)(a) $
31 $
0.02 $
(278) $
(0.31)
Adjustments:
Unrealized losses on oil,
natural gas and NGL
derivatives 13 0.01 287 0.32
Restructuring and other
termination costs - 38 0.04
Provision for legal
contingencies, net 3 9 0.01
Gains on sales of assets (20) (0.01) (37) (0.04)
Other operating (income)
expense(d) 64 0.04 (1)
Impairments 2 64 0.07
(Gains) losses on investments 24 0.02 (139) (0.15)
Other revenue (VPP deferred
revenue) (30) (0.02) (32) (0.04)
Other (4) (59) (0.06)
Income tax benefit(e) (314) (0.21)
Adjusted net loss available to
common stockholders(c) (Non-
GAAP) (231) (0.15) (148) (0.16)
Preferred stock dividends 46 0.03 46 0.05
Earnings allocated to
participating securities -
Total adjusted net loss
attributable to
Chesapeake(a)(c) (Non-GAAP) $
(185) $
(0.12) $
(102) $(0.11)
(a) Our presentation
of diluted net
earnings (losses)
available to
common
stockholders per
share and diluted
adjusted net loss
per share
excludes 207
million shares
considered
antidilutive for
the three months
and six months
ended June 30,
2019 and 2018.
The number of
shares used for
the non-GAAP
calculation was
determined in a
manner consistent
with GAAP.
(b) No income tax
effect from the
adjustments has
been included in
determining
adjusted net
income for the
three months
ended June 30,
2019 and 2018.
Our effective tax
rate was 0% due
to our valuation
allowance
position.
(c) Adjusted net loss
available to
common
stockholders and
total adjusted
net 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 loss
available to
common
stockholders and
total adjusted
net loss
attributable to
Chesapeake
exclude some, but
not all, items
that affect net
income (loss)
available to
common
stockholders our
calculations of
adjusted net loss
available to
common
stockholders and
total adjusted
net loss
attributable to
Chesapeake may
not be comparable
to similarly
titled measures
of other
companies.
(d) The six months
ended June 30,
2019 includes
$26MM in
integration and
acquisition costs
as a result of
Chesapeake's
merger with
WildHorse
Resource
Development
Corporation
(WRD).
Additionally,
most WRD
executives and
employees were
terminated and
entitled to
severance
benefits of
approximately $38
million in
accordance with
certain
provisions of
existing
employment
agreements that
were triggered by
the change in
control.
(e) For the six months
ended June 30,
2019, we recorded
a net deferred
tax liability of
$314 million
associated with
the acquisition
of WildHorse
Resource
Development
Corporation. As a
result of
recording this
net deferred tax
liability through
business
combination
accounting, we
released a
corresponding
amount of the
valuation
allowance that we
maintain against
our net deferred
tax asset
position. This
release resulted
in an income tax
benefit of $314
million. Further,
no income tax
expense or
benefit is shown
for the
adjustments being
made to arrive at
adjusted net
income (loss)
available to
common
stockholders as a
result of not
recording an
income tax
expense or
benefit on
current period
results due to
maintaining a
full valuation
allowance against
our net deferred
tax asset
position.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF CASH PROVIDED BY OPERATING ACTIVITIES TO ADJUSTED EBITDAX
($ in millions)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
---
CASH PROVIDED BY
OPERATING ACTIVITIES
(GAAP) $
397 $
363 $
853 $
951
Adjustments:
Changes in assets and
liabilities 44 26 137 (62)
Other revenue (VPP
deferred revenue) (15) (16) (30) (32)
Interest expense 175 155 336 317
Exploration 8 15 14 28
Stock-based compensation (11) (9) (17) (18)
Restructuring and other
termination costs 38
Losses on investments 7 6
Net income attributable
to noncontrolling
interest (1)
Other items 7 (16) (11) 14
Adjusted EBITDAX (Non-
GAAP)(a) $
612 $
518 $
1,288 $
1,235
(a) Adjusted EBITDAX
is not a measure
of financial
performance under
GAAP, and should
not be considered
as an alternative
to, or more
meaningful than,
cash flow
provided by
operating
activities
prepared in
accordance with
GAAP. Adjusted
EBITDAX excludes
certain items
that management
believes affect
the comparability
of operating
results. The
company believes
this non-GAAP
financial measure
is a useful
adjunct to cash
flow provided by
operating
activities
because:
(i) Management uses adjusted EBITDAX
to evaluate the company's
operational trends and
performance relative to other
oil and natural gas producing
companies.
(ii) Adjusted EBITDAX 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.
Because adjusted
EBITDAX excludes
some, but not
all, items that
affect net income
(loss), our
calculations of
adjusted EBITDAX
may not be
comparable to
similarly titled
measures of other
companies.
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDAX
($ in millions)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
NET INCOME (LOSS) (GAAP) $
98 $
(249) $
77 $
(231)
Adjustments:
Interest expense 175 155 336 317
Income tax benefit (9) (314) (9)
Depreciation, depletion and
amortization 580 471 1,099 930
Exploration 15 20 39 101
Unrealized (gains) losses on oil,
natural gas and NGL derivatives (268) 168 13 287
Restructuring and other termination
costs 38
Provision for legal contingencies, net 3 4 3 9
Gains on sales of assets (1) (18) (20) (37)
Other operating (income) expense 3 (1) 64 (1)
Impairments 1 54 2 64
(Gains) losses on investments 23 24 (139)
Net income attributable to
noncontrolling interests (1)
Other revenue (VPP deferred revenue) (15) (16) (30) (32)
Other (2) (61) (5) (61)
Adjusted EBITDAX (Non-GAAP)(a) $
612 $
518 $
1,288 $
1,235
(a) Adjusted EBITDAX
is not a measure
of financial
performance under
GAAP, and should
not be considered
as an alternative
to, or more
meaningful than,
net income (loss)
prepared in
accordance with
GAAP. Adjusted
EBITDAX excludes
certain items
that management
believes affect
the comparability
of operating
results. The
company believes
this non-GAAP
financial measure
is a useful
adjunct to net
income (loss)
because:
(i) Management uses adjusted EBITDAX
to evaluate the company's
operational trends and
performance relative to other
oil and natural gas producing
companies.
(ii) Adjusted EBITDAX 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.
Because adjusted
EBITDAX excludes
some, but not
all, items that
affect net income
(loss), our
calculations of
adjusted EBITDAX
may not be
comparable to
similarly titled
measures of other
companies.
CHESAPEAKE ENERGY CORPORATION
MANAGEMENT'S OUTLOOK AS OF AUGUST 6, 2019
Chesapeake periodically provides guidance on certain
factors that affect the company's future financial
performance. New information or changes from the
company's May 8, 2019 outlook are italicized bold below.
Year Ending
12/31/2019
Absolute Production:
Oil -mmbbls 43.0 -44.5
NGL - mmbbls
13.0 - 15.0
Natural gas -bcf 725 -750
Total absolute production -
mmboe 177 -184
Absolute daily rate -mboe 484 -505
Estimated Realized Hedging Effects(a) (based on 7/31/19
strip prices)
Oil -$/bbl $0.35
Natural gas -$/mcf $0.14
Estimated Basis to NYMEX Prices:
Oil -$/bbl
$1.95 - $2.15
Natural gas -$/mcf
($0.10) - ($0.20)
NGL -realizations as a % of
WTI 25% - 28%
Operating Costs per boe of Projected Production:
Production expense
$3.20 - $3.40
Gathering, processing and
transportation expenses
$5.90 - $6.40
Oil -$/bbl
$2.95 - $3.15
Natural Gas -$/mcf
$1.20 - $1.30
Production taxes
$0.80 - $0.90
General and
administrative(b)
$1.75 - $1.85
Stock-based compensation
(non-cash)
$0.10 - $0.20
Marketing Net Margin and
Other ($ in millions)(c)
($15) - ($35)
Adjusted EBITDAX, based on
7/31/19 strip prices ($ in
millions)(d)
$2,450 - $2,650
Depreciation, depletion and
amortization expense
$12.50 - $13.50
Interest expense
$3.80 - $4.00
Exploration expense ($ in
millions, cash only)
$35 - $45
Book Tax Rate 0%
Capital Expenditures ($ in
millions)(e)
$2,085 - $2,285
Capitalized Interest ($ in
millions) $20
Total Capital Expenditures
($ in millions)
$2,105 - $2,305
(a) 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.
(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) Excludes non-cash amortization of
approximately $8.7 million related
to the buydown of a transportation
agreement.
(d) Adjusted EBITDAX 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 EBITDAX
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 EBITDAX 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 EBITDAX include
interest expense, income taxes, and
depreciation, depletion and
amortization expense, exploration
expense as well as one-time items
or items whose timing or amount
cannot be reasonably estimated.
(e) Includes capital expenditures for
drilling and completion, leasehold,
developmental geological and
geophysical costs, rig termination
payments and other property, plant
and equipment. Excludes any
additional proved property
acquisitions and expenditures
classified as exploration expense.
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 July 31, 2019, including July and August derivative contracts that have settled, approximately 85% of the company's 2019 forecasted oil, natural gas and NGL production revenue was hedged, including approximately 79% and 78% of its remaining 2019 forecasted oil and natural gas production at average prices of $59.38 per bbl and $2.83 per mcf, respectively.
In addition, the company had downside protection on a portion of its 2020 oil production at an average price of $59.93 per bbl and on a portion of its 2020 gas production at an average price of $2.76 per mcf.
The company's crude oil hedging positions were as follows:
Open Crude Oil Swaps
Volume Avg. NYMEX
(mmbbls) Price of Swaps
Q3 2019 7 $
60.16
Q4 2019 7 $
60.24
Total 2019 14 $
60.20
Total 2020 13 $
59.21
Oil Two-Way Collars
Volume Avg. NYMEX Avg. NYMEX
Bought Put Sold Call
Price Price
(mmbbls)
---
Q3
2019 2 $
58.00 $
67.75
Q4
2019 1 $
58.00 $
67.75
Total
2019 3 $
58.00 $
67.75
Total
2020 2 $
65.00 $
83.25
Oil Puts
Volume Avg. NYMEX
(mmbbls) Bought Put
Price
---
Total 2019 1 $
54.13
Oil Swaptions
Volume Avg. NYMEX
(mmbbls) Strike Price
---
Total 2020 2 $
63.15
Oil Basis Protection Swaps
Volume Avg. NYMEX
(mmbbls) plus/(minus)
---
Q3 2019 2 $
5.97
Q4 2019 2 $
5.67
Total 2019 4 $
5.85
The company's natural gas hedging positions were as follows:
Open Natural Gas Swaps
Volume Avg. NYMEX
(bcf) Price of
Swaps
---
Q3 2019 137 $
2.83
Q4 2019 118 $
2.84
Total 2019 255 $
2.84
Total 2020 265 $
2.76
Natural Gas Two-Way Collars
Volume Avg. NYMEX Avg. NYMEX
Bought Put Sold Call
Price Price
(bcf)
---
Q3 2019 9 $
2.75 $
2.91
Q4 2019 9 $
2.75 $
2.91
Total 2019 18 $
2.75 $
2.91
Natural Gas Three-Way Collars
Volume Avg. Avg. Avg.
NYMEX NYMEX NYMEX
(bcf) Sold Put Bought Put Sold Call
Price Price Price
---
Q4
2019 15 $
2.50 $
2.80 $
3.10
Total
2019 15 $
2.50 $
2.80 $
3.10
Natural Gas Net Written Call Options
Volume Avg. NYMEX
(bcf) Strike Price
---
Q3 2019 6 $
12.00
Q4 2019 5 $
12.00
Total 2019 11 $
12.00
Total 2020 22 $
12.00
Natural Gas Net Written Call Swaptions
Volume Avg. NYMEX
(bcf) Strike Price
---
Total 2020 106 $
2.77
Total 2021 15 $
2.80
Total 2022 15 $
2.80
Natural Gas Basis Protection Swaps
Volume Avg. NYMEX
plus/(minus)
(bcf)
---
Q3 2019 11 $
0.20
Q4 2019 15 $
(0.23)
Total 2019 26 $
(0.05)
Total 2020 15 $
(0.19)
INVESTOR CONTACT:
MEDIA CONTACT:
Brad Sylvester, CFA
Gordon Pennoyer
(405) 935-8870 (405) 935-8878
ir@chk.com media@chk.com
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SOURCE Chesapeake Energy Corp.
