McClendon Departs Chesapeake; Changes Announced
There are multiple press releases in the wake of Aubrey McClendon's ouster from Chesapeake Energy becoming official today. Read them here.
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And:Appoints Steven C. Dixon Acting Chief Executive OfficerOKLAHOMA CITY--(BUSINESS WIRE)--Mar. 29, 2013-- Chesapeake Energy Corporation (NYSE: CHK) today announced that its Board of Directors has established a three-person Office of the Chairman while continuing its previously announced CEO search process with the assistance of Heidrick & Struggles.The Office of the Chairman includes: Archie W. Dunham, Non-Executive Chairman of the Board; Steven C. Dixon, who has been named Acting Chief Executive Officer in addition to his continuing role as Chief Operating Officer; and Domenic J. Dell’Osso Jr., Chief Financial Officer. Mr. Dixon has served as Executive Vice President and Chief Operating Officer since 2006 and has held various senior operational positions since joining Chesapeake in 1991. Mr. Dell’Osso has served as Executive Vice President and Chief Financial Officer since 2010 after serving in various financial roles since 2008.As part of Chesapeake’s previously announced succession plan, the members of the Office of the Chairman have been working closely to transition oversight of strategic, operational, and financial matters as well as certain day-to-day management responsibilities from Chief Executive Officer Aubrey K. McClendon, who has previously agreed with the Board to retire on April 1, 2013.Archie W. Dunham, Chairman of the Board, said, “Chesapeake continues to perform well and is successfully executing our strategy to increase liquids production, drive capital efficiencies across the business, and enhance financial flexibility to prudently fund growth. Steve and Nick are both playing key leadership roles as the company accelerates the realization of the substantial intrinsic value of our world-class oil and gas assets for the benefit of all Chesapeake stakeholders.”Conference Call InformationA conference call to discuss this release and to provide an operational update has been scheduled for Monday, April 1, 2013 at 8:30 am EDT. The telephone number to access the conference call is 913-312-1516 or toll-free 888-778-9065. The passcode for the call is 4764790. We encourage those who would like to participate in the call to place calls between 8:20 and 8:30 am EDT. For those unable to participate in the conference call, a replay will be available for audio playback at 1:00 pm EDT on Monday, April 1, 2013 and will run through midnight Monday, April 15, 2013. The number to access the conference call replay is 719-457-0820 or toll-free 888-203-1112. The passcode for the replay is 4764790. The conference call will also be webcast live on Chesapeake’s website in the “Events” subsection of the “Investors” section of the company’s website. The webcast of the conference will be available on the company’s website for one year.
OKLAHOMA CITY (APRIL 1, 2013) – Chesapeake Energy Corporation (NYSE:CHK) acting CEO Steve Dixon made the following remarks today on a national conference call:And:
I would like to begin by expressing our sincere appreciation and gratitude to Aubrey for his leadership, dedication and contributions to the company – and to our entire industry – over the past 24 years. I personally would like to thank Aubrey for his wisdom, guidance and friendship during the 22 years we have partnered together at Chesapeake and I certainly wish him well in his future endeavors.
Looking ahead, I am very excited for Chesapeake’s future – and our senior management team is energized about our opportunities ahead as we convert the great resources we have discovered and captured into production, cash flow and investor returns.
Our management team and Board of Directors are well-aligned in our objectives and strategy to take Chesapeake forward. We will remain focused on increasing our liquids production, driving capital efficiencies across our business and enhancing our financial flexibility to prudently fund our future growth.
Maintaining our culture of excellence at Chesapeake is also a priority and we will continue to conduct our business with the same urgency, intensity and attention to detail that we have always had.
Shifting to our operations, I am pleased to report that we are achieving many important objectives and surpassing notable production milestones. Our current levels of drilling and completion and leasehold capital expenditures are on a pace below our budgeted expenditure plan for the year. While expenditures are on-track to come in under budget in the first quarter, we are also delivering on planned production targets, despite challenges from winter storms in the Mid-Continent and several midstream outages and delays.
We have recently averaged an all-time high water mark in average daily net liquids production at 160 thousand barrels per day. We have also recently exceeded 4 bcfe per day of production, having regained this level following the sale of production from recent transactions in the Permian Basin, the Mid-Continent and other areas.
We are also making great progress on cost reductions and are on track for our lease operating expenses and G&A expenses to come in at or below budget this year.
Turning to asset sales, we have completed or signed up approximately $1.5 billion of sales as part of our plans for $4-7 billion of sales this year – and we are on track to execute agreements for additional sales in the next few months that we look forward to sharing with you once definitive agreements are reached.
We are particularly pleased at the market’s response to multiple small asset packages we have offered. These packages represent very good opportunities for development and exploratory drilling that Chesapeake will not be in a position to exploit in the near-term, yet can provide great value to our asset buyers. While many of these assets may not be individually noteworthy to investors, in aggregate, the combined value that we anticipate collecting during the year will likely be very meaningful and lead to further progress in improving our balance sheet.
We have also taken advantage of the recent surge in natural gas prices to lock in additional price protection for 2013 – and we have begun to hedge natural gas production for 2014 at prices well above four dollars – a level the market has not seen for quite some time.
Now turning to specific plays, I would first like to highlight several positive developments underway in our Utica Shale play in eastern Ohio and western Pennsylvania. As many of you know, Chesapeake discovered the play in 2010 and completed an important joint venture with Total in 2010. We are the largest leaseholder with approximately 1 million net acres in the play. To date we have drilled more than 240 wells in the Utica, representing approximately 75% of the wells drilled in the entire play thus far.
As a result of infrastructure constraints, we currently have turned to sales just 54 wells, but we anticipate a substantial ramp up in completions as we progress through the year. We are only producing 75 million cubic feet equivalent (mmcfe) per day from the play, net to Chesapeake, due to processing constraints, but we believe this well set is capable of producing approximately double this level if unconstrained. We are targeting net production of more than 330 mmcfe per day, or 55,000 barrel of oil equivalent (boe), from the play by the end of the year. Achieving this level will be dependent on the timely startup of critical processing infrastructure at multiple facilities in the months ahead.
As an example of the outstanding recent well results we are achieving in this play, we recently completed a six well program on our Scott Unit in Carroll County, Ohio. We drilled six wells from a common PAD with average 24-hour restricted test rates of 1,250 boe per day, which included 310 barrels of oil, 200 barrels of NGL, with ethane not recovered, and 4.4 mmcf of natural gas per day, at flowing tubing pressures exceeding 3000 psi. Well costs for this group averaged approximately $6.5 MM, indicating just some of the potential cost savings we expect to realize as our operations mature and we focus on development in the future.
I would also note that we have recently submitted 2012 annual production data and other information on our wells drilled in 2011 and 2012 to the Ohio Department of Natural Resources. This data will be available publicly, perhaps later this week. Due to the infrastructure constraints I mentioned before, it was necessary to curtail and restrict production on the wells placed into service last year. As a result, we believe the data reported to the ODNR is not indicative of the productive capacity of Utica Shale wells in our development fairway.
Based on Chesapeake’s geoscientific, petrophysical and engineering research during the past two years – and the results and detailed analysis of wells we have drilled to date – Chesapeake is targeting ultimate reserve recoveries of 5 to 10 billion cubic feet equivalent (bcfe) per well in the Utica, depending on location and commodity mix within the play.
Our analysis of the play to date indicates a very prolific resource base is in place that varies across the play with an increasing condensate yield from east to west following a strong correlation to reservoir maturity.
Given our view of per well reserve and production potential and in consideration of product mix, planned well costs and current market prices, we are targeting drilling rates of return of 30-80% with an average return in excess of 40% within our joint venture AMI with Total, which is largely in the wet gas window of the play.
Turning to the Eagle Ford Shale play in South Texas, I am pleased to report that we continue to achieve strong operating results. We recently established a daily record high of 124,000 barrels per day of gross operated oil production, or approximately 56,000 barrels per day net to Chesapeake. We believe our gross operated production level potentially ranks Chesapeake as the second largest oil producer in the play and further validates the quality of our Eagle Ford asset base.
Our total daily net production from the Eagle Ford has recently averaged 80,000 boe per day and we are targeting total daily net production of more than 92,000 boe per day by year-end – even after selling net production of approximately 5,000 boe per day associated with our Northern Eagle Ford asset package that is currently on the market. This strong growth will be generated from the completion and first production from more than 400 gross wells this year.
Our margins in the Eagle Ford continue to be strong, particularly as a result of the premium pricing for crude oil that is being sold based on LLS pricing that has remained well above WTI pricing. Looking forward, we anticipate further margin expansion though transportation cost reductions and better access to premium markets as a result of the startup of multiple important pipeline projects this year.
In terms of capital efficiency, we continue to make good progress at reducing well costs in the Eagle Ford through reduced cycle times, further economies of scale and optimized completions. Our well costs for a 6,300 foot lateral well have decreased from over $9 million early in the play to approximately $7 million currently. Once we largely complete our drilling campaign in the play to hold leases by production late this year, we believe we can drive well costs down further to the $6 million range by utilizing existing infrastructure and by capitalizing on pad-development efficiencies.
As a reminder, we are allocating the largest percentage of our drilling and completion capital expenditure budget to the Eagle Ford Shale this year representing approximately 35% of our planned drilling and completion capital expenditures.
We are also beginning to test the merits of increased density drilling on our acreage with pilot programs under way to evaluate well performance on 350 foot offset spacing – which equates to roughly 50 acre well spacing. If successful, this development approach would increase our drilling inventory meaningfully from the 500 foot or 70 acre well spacing development plan we currently assume.
In summary, the leadership transition at Chesapeake is being implemented smoothly and successfully – and we are very pleased with the operational results our company is delivering as highlighted by the two examples provided today. We look forward to sharing our first quarter financial results and provide a more detailed update on our asset sales initiatives soon.
OKLAHOMA CITY--(BUSINESS WIRE)--Apr. 1, 2013-- Chesapeake Energy Corporation (NYSE:CHK) today announced the early tender results for its previously announced cash tender offers (collectively the “Tender Offers” and each a “Tender Offer”) for any and all of its 7.625% Senior Notes due 2013 (the “2013 Notes”) and its 6.875% Senior Notes due 2018 (the “2018 Notes” and, together with the 2013 Notes, the “Notes”).
Chesapeake also announced today that it had completed an offering of $2.3 billion of its senior notes, which was a condition to its obligation to accept for purchase and to pay for any Notes in a Tender Offer. Subject to the terms and conditions set forth in the Offer to Purchase, Chesapeake today accepted for purchase all Notes validly tendered in the Tender Offers as of 5:00 p.m., New York City time, on March 28, 2013 (such date and time, the "Early Tender Date").
The Tender Offers are being made pursuant to an Offer to Purchase and a related Letter of Transmittal, each dated March 18, 2013, which set forth a more detailed description of the terms and conditions of each Tender Offer.
7.625% Senior Notes due
US165167BY25 $464,110,000 $216,187,000
6.875% Senior Notes due
US165167CE51 $473,668,000 $376,595,000
The column in the table above entitled “Early Tender Results” shows the aggregate principal amount of each series of Notes that was validly tendered in the Tender Offers as of the Early Tender Date. Holders of Notes that were validly tendered at or prior to the Early Tender Date received the applicable Total Consideration, as set forth in the Offer to Purchase, which included the Early Tender Premium of $30.00 per $1,000 in principal amount of Notes. The Total Consideration with respect to each series of Notes has not been changed.
Each Tender Offer is scheduled to expire at 11:59 p.m., New York City time, on April 12, 2013 unless it is extended or earlier terminated (such date and time as it may be extended with respect to a Tender Offer, the “Expiration Date”). Holders who have not already tendered Notes may continue to do so at any time prior to the applicable Expiration Date. Such holders will receive in cash, for each $1,000 in principal amount of Notes tendered, the applicable Purchase Price set forth in the Offer to Purchase, which does not include the Early Tender Premium. The Purchase Price with respect to each series of Notes has not been changed. Tendered Notes may no longer be withdrawn, except to the extent that Chesapeake is required by law to provide additional withdrawal rights.
In addition to the applicable Purchase Price or the applicable Total Consideration, as the case may be, holders of Notes of a series accepted for purchase will also receive accrued and unpaid interest on those Notes from the last interest payment date for such Notes to, but not including, the applicable settlement date for such series of Notes.
Settlement of Notes that are validly tendered and accepted for purchase after the Early Tender Date but before the applicable Expiration Date will promptly follow the applicable Expiration Date. Chesapeake currently anticipates that each such settlement date will occur on or about April 15, 2013 (such date being subject to change without prior notice).
Chesapeake has retained Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. LLC as the dealer managers for the Tender Offers. D.F. King & Co., Inc. has been retained as the tender agent and information agent for the Tender Offers. For additional information regarding the terms of the Tender Offers, please contact: Credit Suisse Securities (USA) LLC at (800) 820-1653 (U.S. toll free) or (212) 538-2147 (collect) or Morgan Stanley & Co. LLC at (800) 624-1808 (U.S. toll free) or (212) 761-1057 (collect). Requests for documents and questions regarding the tender of Notes may be directed to D.F. King & Co, Inc. at the address, telephone numbers and email address set forth below.
D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, NY 10005
Attention: Elton Bagley
Banks and brokers call collect: (212) 269-5550
All others call toll-free: (800) 697-6975
None of Chesapeake, its board of directors, the dealer managers or the tender agent and information agent makes any recommendation that you tender or refrain from tendering all or any portion of the principal amount of your Notes, and no one has been authorized by any of them to make such a recommendation.
This announcement does not constitute an offer to purchase or a solicitation of an offer to sell any securities. The Tender Offers are being made solely by means of the Offer to Purchase and the related Letter of Transmittal. In any jurisdiction where the laws require a tender offer to be made by a licensed broker or dealer, the Tender Offers will be deemed to be made on behalf of Chesapeake by the dealer managers or one or more registered brokers or dealers under the laws of such jurisdiction.
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