OKLAHOMA CITY, Aug. 10, 2016 /PRNewswire/ -- Chesapeake
Energy Corporation (NYSE:CHK) today announced that it has entered
into an agreement to convey its interests in the Barnett Shale
operating area located in North
Texas to Saddle Barnett Resources, LLC ("Saddle Resources"),
a company backed by First Reserve, a leading global private equity
and infrastructure investment firm exclusively focused on energy,
and simultaneously terminate future commitments associated with
this asset.
The impacts to Chesapeake upon completion of these actions will
be as follows:
- Increases Chesapeake's operating income, before charges and
other termination costs associated with this transaction, by
approximately $200 to $300 million
per year from 2016 through 2019
- Reduces remaining 2016 gathering, processing and
transportation (GP&T) expenses by approximately $250 million, including $170 million for a projected minimum volume
commitment (MVC) shortfall payment
- Provides 2017 projected GP&T expenses with a range of
$7.15 to $7.65 per barrel of oil
equivalent (boe), approximately $0.45
per boe lower than current 2016 guidance (using midpoints)
- Reduces projected 2017 GP&T expenses by approximately
$465 million, including $230 million of projected MVC shortfall
payments
- Eliminates future Barnett Shale midstream and downstream
commitments of approximately $1.9
billion
- Increases the PV-10 of the company's total proved reserves
by approximately $550 million after
removal of Barnett assets and the associated projected MVC
shortfall payments
As part of the transaction, Chesapeake and Williams Partners
(NYSE:WPZ) have agreed to terminate the current gathering
agreement, projected MVC shortfall payments and fees pertaining to
the Barnett Shale assets, for which Chesapeake expects to pay
$334 million in cash to Williams,
with First Reserve portfolio company Saddle Resources expected to
pay an additional sum. The transaction is subject to a number of
closing conditions, including the receipt of third-party consents,
and is expected to close in the third quarter of 2016.
In addition, the company announced it has renegotiated its gas
gathering agreement with Williams in its Mid-Continent operating
area in exchange for a payment by the company of $66 million.
Separately, Chesapeake accelerated the value of a gas supply
contract by selling its rights under a long-term gas supply
agreement for $146 million in cash
proceeds. Both of these transactions are discussed further
below.
Chesapeake Chief Executive Officer Doug
Lawler commented, "Today's announcements mark a major step
in our continued progress to transform Chesapeake. By exiting the
Barnett, we expect to increase our operating income for the
remainder of 2016 through 2019 between $200
and $300 million annually, eliminate approximately
$1.9 billion of total future
midstream and downstream commitments, and increase the PV-10 of our
proved reserves. Given the significant negative cash flow profile
of the Barnett assets, the net cash paid out in these transactions
has a payback of less than 18 months, and it will be partially
funded by the $146 million sale and
assignment of our long-term gas supply contract.
"We are also releasing preliminary 2017 guidance for the items
most directly impacted by these transactions, including wide
initial ranges for production and capital spending, in order to
highlight our flexibility around commodity prices. The
transformation of Chesapeake into a top-tier E&P company
continues, and these transactions, along with our previously
announced balance sheet and liquidity improvements, provide
significant forward progress. We believe there are more positive
moves to come."
Properties in the proposed Barnett transaction include
approximately 215,000 net developed and undeveloped acres and
approximately 2,800 operated wells, which produced an average of
approximately 65,000 boe per day (96% natural gas, 4% natural gas
liquids) in the 2016 second quarter. The expected net production
impact from the proposed transaction is approximately 62,000 boe
per day. Proved oil and natural gas reserves in the Barnett Shale
as of December 31, 2015 were
approximately 81 million boe (96% natural gas, 4% natural gas
liquids).
In exchange for a cash payment of $66
million, Chesapeake also renegotiated its existing
cost-of-service gas gathering agreement with Williams covering the
Mid-Continent operating area to a fixed-fee arrangement. As a
result, Chesapeake's Mid-Continent gas gathering costs are expected
to be reduced by 36%, effective July 1,
2016.
Lawler continued, "We believe that our approximately 1.5 million
net acreage position in the Mid-Continent area represents a
tremendous resource. The new gas gathering agreement makes our
operations more competitive and enhances the operating income from
this asset."
Separately, Chesapeake agreed to accelerate the value of a
long-term natural gas supply contract with a $4.00 per million British thermal units floor
pricing mechanism by selling it to a third party for cash proceeds
of approximately $146 million. This
transaction strengthens the company's liquidity position by
providing partial funding to pay for these announced midstream
transactions.
As a result of these transactions, Chesapeake has updated its
guidance on certain factors that affect its financial performance
for the remainder of 2016 and has also provided preliminary 2017
guidance. Changes from the company's August
4, 2016 Outlook are italicized bold below.
CHESAPEAKE ENERGY
CORPORATION
MANAGEMENT'S
OUTLOOK AS OF AUGUST 9, 2016
|
|
|
Year
Ending
12/31/2016
|
Adjusted Production
Growth(a)
|
(2%) to
3%
|
Absolute
Production
|
|
Liquids –
mmbbls
|
56 - 60
|
Oil –
mmbbls
|
33 - 35
|
NGL -
mmbbls
|
23 - 25
|
Natural gas -
bcf
|
1,000 -
1,040
|
Total absolute
production - mmboe
|
223 -
233
|
Absolute daily rate -
mboe
|
611 -
638
|
Estimated Realized
Hedging Effects(b) (based on 8/1/16 strip
prices):
|
|
Oil - $/bbl
|
$4.63
|
Natural gas -
$/mcf
|
$0.13
|
NGL - $/bbl
|
($0.18)
|
Estimated Basis to
NYMEX Prices:
|
|
Oil - $/bbl
|
$2.55 -
$2.65
|
Natural gas -
$/mcf
|
$0.35 -
$0.45
|
NGL - $/bbl
|
$5.20 -
$5.45
|
Operating Costs per
Boe of Projected Production:
|
|
Production
expense
|
$3.20 -
$3.40
|
Gathering, processing
and transportation expenses
|
$7.60 -
$8.10
|
Oil - $/bbl
|
$3.75 -
$3.95
|
Natural Gas -
$/mcf
|
$1.40 -
$1.50
|
NGL - $/bbl
|
$7.60 -
$7.85
|
Production
taxes
|
$0.35 -
$0.45
|
General and
administrative(c)
|
$0.60 -
$0.70
|
Stock-based
compensation (noncash)
|
$0.10 -
$0.20
|
DD&A of natural
gas and liquids assets
|
$3.50 -
$4.50
|
Depreciation of other
assets
|
$0.40 -
$0.50
|
Interest
expense(d)
|
$1.05 -
$1.15
|
Marketing, gathering
and compression net margin(e)
|
($20) -
$0
|
Book Tax
Rate
|
0%
|
Capital Expenditures
($ in millions)(f)
|
$1,000 -
$1,500
|
Capitalized Interest
($ in millions)
|
$260
|
Total Capital
Expenditures ($ in millions)
|
$1,260 -
$1,760
|
|
|
(a)
|
Based on 2015
production of 559 mboe per day, adjusted for 2015 and 2016
sales.
|
(b)
|
Includes expected
settlements for commodity derivatives adjusted for option
premiums. For derivatives closed early, settlements are
reflected in the period of original contract expiration.
|
(c)
|
Excludes expenses
associated with stock-based compensation.
|
(d)
|
Excludes unrealized
gains (losses) on interest rate derivatives.
|
(e)
|
Includes revenue and
operating expenses. Excludes depreciation and amortization of other
assets and unrealized gains (losses) on supply contract
derivatives. Includes the impact of the recent sale of a long-term
gas supply contract.
|
(f)
|
Includes capital
expenditures for drilling and completion, leasehold, geological and
geophysical costs, rig termination payments and other property and
plant and equipment and excludes approximately $259 million for the
repurchase of overriding royalty interests associated with the sale
of certain of the company's properties.
|
CHESAPEAKE ENERGY
CORPORATION
MANAGEMENT'S
PRELIMINARY OUTLOOK FOR 2017 AS OF AUGUST 9, 2016
|
|
Adjusted Production
Growth(a)
|
(7%) to
(2%)
|
Absolute
Production
|
|
Liquids -
mmbbls
|
51 - 55
|
Oil -
mmbbls
|
33 - 35
|
NGL -
mmbbls
|
18 - 20
|
Natural gas -
bcf
|
860 - 900
|
Total absolute
production - mmboe
|
194 - 205
|
Absolute daily rate -
mboe
|
532 - 562
|
Operating Costs per
Boe of Projected Production:
|
|
Production
expense
|
$3.10 -
$3.30
|
Gathering, processing
and transportation expenses
|
$7.15 -
$7.65
|
Oil -
$/bbl
|
$4.65 -
$4.85
|
Natural Gas -
$/mcf
|
$1.25 -
$1.35
|
NGL -
$/bbl
|
$7.40 -
$7.60
|
Marketing, gathering
and compression net margin(b)
|
|
($60) –
($40)
|
Capital Expenditures
($ in millions)(a)(c)
|
$1,600 -
$2,400
|
Capitalized Interest
($ in millions)
|
$200
|
Total Capital
Expenditures ($ in millions)
|
$1,800 -
$2,600
|
|
|
|
|
|
(a)
|
Based on 2016
production of 567 mboe per day, adjusted for 2016 asset sales.
Subject to future asset acquisition and divestiture
activity.
|
(b)
|
Includes revenue and
operating expenses. Excludes depreciation and amortization of other
assets and unrealized gains (losses) on supply contract
derivatives.
|
(c)
|
Includes capital
expenditures for drilling and completion, leasehold, geological and
geophysical costs, rig termination payments and other property and
plant and equipment.
|
Headquartered in Oklahoma
City, Chesapeake Energy Corporation's (NYSE: CHK) operations
are focused on discovering and developing its large and
geographically diverse resource base of unconventional oil and
natural gas assets onshore in the United States. The company
also owns oil and natural gas marketing and natural gas gathering
and compression businesses. Further information is available
at www.chk.com where Chesapeake routinely posts announcements,
updates, events, investor information, presentations and news
releases.
This news release includes "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,
including the consummation and expected benefits of transactions.
They include statements that give our current expectations or
forecasts of future events, production and well connection
forecasts, estimates of operating costs, anticipated capital and
operational efficiencies, planned development drilling and expected
drilling cost reductions, general and administrative expenses,
capital expenditures, the timing of anticipated noncore asset sales
and proceeds to be received therefrom, projected cash flow and
liquidity, our ability to enhance our cash flow and
financial flexibility, plans and objectives for future operations
(including our ability to optimize base production and execute gas
gathering agreements), the ability of our employees, portfolio
strength and operational leadership to create long-term value, and
the assumptions on which such statements are based. Although we
believe the expectations and forecasts reflected in the
forward-looking statements are reasonable, we can give no assurance
they will prove to have been correct. They can be affected by
inaccurate or changed assumptions or by known or unknown risks and
uncertainties.
Factors that could cause actual results to differ materially
from expected results include those described under "Risk Factors"
in Item 1A of our annual report on Form 10-K and any updates to
those factors set forth in Chesapeake's subsequent quarterly
reports on Form 10-Q or current reports on Form 8-K (available at
http://www.chk.com/investors/sec-filings). These risk factors
include the volatility of oil, natural gas and NGL prices;
write-downs of our oil and natural gas carrying values due to
declines in prices; the limitations our level of indebtedness may
have on our financial flexibility; the availability of operating
cash flow and other funds to finance reserve replacement costs; 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 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; federal and state tax proposals affecting our industry;
potential OTC derivatives regulation limiting our ability to hedge
against commodity price fluctuations; impacts of potential
legislative and regulatory actions addressing climate change;
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; cyber
attacks adversely impacting our operations; and interruption in
operations at our headquarters due to a catastrophic event.
The transactions may not be completed in the time frame
anticipated or at all. In addition, these transactions are subject
to closing conditions, including the consummation of the related
transactions and receipt of third-party consents, and 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.
NON-GAAP FINANCIAL MEASURES
PV-10 is a non-GAAP metric used by the industry, investors and
analysts to estimate the present value, discounted at 10% per
annum, of estimated future cash flows of the company's estimated
proved reserves before income tax and asset retirement obligations.
The standardized measure of discounted future net cash flows is the
most directly comparable GAAP measure. Management believes that
PV-10 provides useful information to investors because it is widely
used by professional analysts and sophisticated investors in
evaluating oil and natural gas companies. We are unable to
reconcile PV-10 to the standardized measure because it is not
practical to project taxes for future periods. PV-10 should not be
considered as an alternative to the standardized measure of
discounted future net cash flows as computed under GAAP.
INVESTOR
CONTACT:
|
MEDIA
CONTACT:
|
CHESAPEAKE ENERGY
CORPORATION
|
Brad Sylvester,
CFA
(405)
935-8870
ir@chk.com
|
Gordon
Pennoyer (405)
935-8878 media@chk.com
|
6100 North Western
Avenue P.O. Box
18496 Oklahoma City, OK
73154
|
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SOURCE Chesapeake Energy Corporation