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Friday, February 26, 2016

Chesapeake Reports $14.5 Billion Net Loss for 2015, Halts Utica Shale Drilling

From a Chesapeake Energy press release:
For the 2015 full year, Chesapeake reported a net loss available to common stockholders of $14.856 billion, or $22.43 per fully diluted share. Items typically excluded by securities analysts in their earnings estimates reduced net income available to common stockholders for the 2015 full year by approximately $14.527 billion. The primary sources of this reduction were quarterly noncash impairments of the carrying value of Chesapeake's oil and natural gas properties largely resulting from significant decreases in the trailing 12-month average first-day-of-the-month oil and natural gas prices used in the company's impairment calculations. Adjusting for these items, 2015 full year adjusted net loss available to common stockholders was $329 million, or $0.20 per fully diluted share, compared to adjusted net income available to common stockholders of $957 million, or $1.49 per fully diluted share, for the 2014 full year. 
Adjusted ebitda was $2.385 billion for the 2015 full year, compared to $4.945 billion for the 2014 full year. Operating cash flow, which is defined as cash flow provided by operating activities before changes in assets and liabilities, was $2.268 billion for the 2015 full year, compared to $5.146 billion for the 2014 full year. The year-over-year decreases in adjusted ebitda and operating cash flow were primarily the result of lower realized oil, natural gas and natural gas liquid (NGL) prices and lower production volumes, partially offset by higher realized hedging gains and lower production expenses, general and administrative (G&A) expenses and production taxes. Realized hedging gains on the company's oil and gas production resulted in additional revenues of approximately $1.3 billion for the 2015 full year, on a pre-tax basis, compared to realized hedging losses of approximately $375 million for the 2014 full year. 
Adjusted net income available to common stockholders, operating cash flow, ebitda and adjusted ebitda are non-GAAP financial measures. Reconciliations of these measures to comparable financial measures calculated in accordance with generally accepted accounting principles are provided in this release. 
Chesapeake's daily production for the 2015 full year averaged 679,200 barrels of oil equivalent (boe), a year-over-year increase of 8%, adjusted for asset sales. Average daily production consisted of approximately 114,000 barrels (bbls) of oil, 2.9 billion cubic feet (bcf) of natural gas and 76,700 bbls of NGL. Adjusted for asset sales, 2015 full year average daily oil production increased 7%, average daily natural gas production increased 7% and average daily NGL production increased 14%.
While the $14.5 billion loss is an incredible number, the fact that all but about $300 million of it came from impairments, or writedowns in the value of the company's assets, actually was seen as good news and spurred a small rally in Chesapeake's stock value in the wake of the announcement of these results.

Chesapeake's plan for 2016 involves slashing expenses and continuing to sell off assets.  While the company is finding a way to weather the storm better than many analysts had predicted, it is clear that it is still in survival mode, like so many other drillers.  One part of the plan to cut the budget is to suspend new drilling in both the Utica and the Marcellus shale plays.

From the Akron Beacon Journal:
Financially strapped Chesapeake Energy Corp. is halting new drilling in Ohio’s Utica Shale. 
The company, Ohio’s No. 1 Utica driller, announced Wednesday that it does not intend to drill new wells in eastern Ohio in 2016 because of financial constraints. 
That could change if the prices paid for natural gas and liquids increase significantly, the company said. 
It has released the two drilling rigs that had been at work in Ohio in the fourth quarter 2015 in Carroll and Harrison counties. 
Chesapeake, also the No. 1 driller in Pennsylvania, said it is halting drilling in the state’s Marcellus Shale; one rig had been at work there in late 2015. Rigs also have been released by Chesapeake in the Powder River Basin in Wyoming and will be dropped in the Eagle Ford Shale in Texas by June.
Chesapeake is also selling off more assets to raise cash.  In one deal Chesapeake sold off future royalty interests for a cash payment.  From NGI:
Private equity-backed Haymaker Resources LP has agreed to pay Chesapeake Energy Corp. $128 million for a bundle of mineral and royalty interests in 24 states and 324 counties. 
The Haymaker Minerals & Royalties LLC unit, based in Houston, secured interests in more than 8,500 wells, some of which are producing. The acquisition includes properties that primarily are in the Midcontinent, Appalachia and Haynesville Shale. 
"In the current market environment, operators are focusing on their core assets more than ever before," Haymaker CEO Karl Brensike said. "I think everyone can agree that there is nothing more noncore to an operator than owning nonoperated royalty interests."
And FourPoint Energy announced a purchase of more Chesapeake assets in a press release:
FourPoint Energy, LLC announced today the signing of a definitive agreement to acquire all of Chesapeake Energy's remaining Western Anadarko Basin oil and gas assets for a purchase price of $385 million. The assets to be acquired include an interest in nearly 3,500 producing wells primarily in the Granite Wash, Missourian Wash, Upper and Lower Cleveland and Tonkawa formations. The production mix is approximately 67 percent natural gas and 33 percent oil and natural gas liquids. The assets cover approximately 473,000 net acres, within 15 counties in Western Oklahoma and the Texas Panhandle and are 98 percent held by production. The closing of the acquisition, which is expected to occur on April 29, 2016, is subject to customary conditions to closing. FourPoint will assume full operations of the assets at closing.

George Solich, President and CEO of FourPoint said, "This acquisition will significantly increase our position in the Western AnadarkoBasin and will give us greater operatorship and capital control. The properties to be acquired create visibility into decades of development growth and closely overlap FourPoint's current acreage footprint. By optimizing our position we enhance optionality in drilling inventory allowing us to target the best upside locations that achieve the most economic rates of return."

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