OKLAHOMA CITY, Nov. 5, 2019 /PRNewswire/ -- Chesapeake
Energy Corporation (NYSE:CHK) today reported financial and
operational results for the 2019 third quarter. Highlights
include:
- Maintaining 2019 Production and Capital Expenditure
Guidance:
-
- 2019 fourth quarter oil production projected to increase
approximately 10% over 2019 third quarter levels
- Brazos Valley sets net average oil production record of
approximately 40,000 barrels (bbls) of oil per day for the month of
October 2019; continue to deliver
capital and operating costs ahead of projected synergies
- Powder River Basin (PRB) Turner well costs down approximately
10% year to date; first Niobrara well drilled and completed since
2014 produces more than 100,000 bbls of oil in first 87 days
- Continuing Progress on Prudently Managing Balance Sheet
and Cash Costs:
-
- Recently re-affirmed borrowing base of Chesapeake credit
facility
- Exchanged $693 million of Senior
Notes and $40 million of preferred
shares for 319 million common shares at an average discount of
approximately 25%, reducing annual interest and preferred dividend
payments
- Restructured gas gathering and crude oil transportation
contracts in South Texas and
Brazos Valley, improving future returns
- Reducing 2020 Capital Expenditure Forecast by
Approximately 30%, Targeting Free Cash Flow:
-
- Anticipate flat oil production year over year, utilizing 10 to
13 rigs with projected total capital expenditures of approximately
$1.3 to $1.6
billion, contingent upon commodity prices
- Expect to reduce 2020 production and general and administrative
(G&A) expenses by approximately 10%
Doug Lawler, Chesapeake's
President and Chief Executive Officer, commented, "We are pleased
with our execution this quarter as we continue to successfully
integrate and realize value from our Brazos Valley acquisition and
maximize cash flow from our oil assets while reducing capital
directed to our natural gas assets. We expect our oil production to
grow approximately 10% in the fourth quarter, compared to the third
quarter, and we remain on track to meet our 2019 total production
and capital expenditure guidance. Our capital efficiency
improvements, expected reduction in cash costs and anticipated
capital plan position us to target free cash flow in 2020."
2019 Third Quarter Results
For the 2019 third quarter, Chesapeake reported a net loss of
$61 million and a net loss available
to common stockholders of $101
million, or $0.06 per diluted
share. Adjusting for items typically excluded by securities
analysts, the 2019 third quarter adjusted net loss attributable to
Chesapeake was $188 million, or
$0.11 per share, while adjusted
EBITDAX was $577 million.
Reconciliations of financial measures calculated in accordance with
GAAP to non-GAAP measures are provided on pages 16 - 20 of this
release.
Average daily production for the 2019 third quarter was
approximately 478,000 barrels of oil equivalent (boe), representing
year-over-year growth of 3% adjusted for asset purchases and sales,
and consisted of approximately 115,000 bbls of oil, 1.989 billion
cubic feet (bcf) of natural gas and 32,000 bbls of natural gas
liquids (NGL). Average daily production for the 2018 third quarter
was approximately 537,000 boe and consisted of approximately 89,000
bbls of oil, 2.332 bcf of natural gas and 59,000 bbls of NGL. Oil
production represented approximately 24% of the company's 2019
third quarter aggregate production, compared to 17% in the 2018
third quarter.
Despite lower average prices for our oil, natural gas and NGL
sold, Chesapeake's operating margin remained flat in the 2019 third
quarter, compared to the 2018 third quarter, due to an increase in
oil production mix and a decrease in cash costs. Gathering,
processing and transportation and G&A expenses decreased by
$109 million, or approximately
$1.39 per boe, while production
expense increased $23 million, or
$0.86 per boe, when compared to the
same quarter in 2018.
Capital Spending Overview
Chesapeake invested total capital expenditures of approximately
$640 million during the 2019 third
quarter, including capitalized interest of $6 million, compared to approximately
$551 million in the 2018 third
quarter. The increase in capital expenditures in the 2019 third
quarter was largely attributable to an increase in net wells spud,
completed and connected. See tables below for a summary of
activity and expenditures.
|
|
Three Months
Ended
September 30,
|
|
|
2019
|
|
2018
|
|
|
Net
|
|
Gross
|
|
Net
|
|
Gross
|
Operated activity
comparison
|
|
|
|
|
|
|
|
|
Average rig
count
|
|
13
|
|
17
|
|
11
|
|
19
|
Wells spud
|
|
63
|
|
87
|
|
49
|
|
84
|
Wells
completed
|
|
83
|
|
117
|
|
59
|
|
81
|
Wells
connected
|
|
83
|
|
118
|
|
53
|
|
75
|
|
|
Three Months
Ended
September
30,
|
|
|
2019
|
|
2018*
|
Type of cost ($ in
millions)
|
|
|
|
|
Drilling and
completion capital expenditures
|
|
$
|
613
|
|
|
$
|
531
|
|
Leasehold and
additions to other PP&E
|
|
21
|
|
|
16
|
|
Subtotal capital
expenditures
|
|
$
|
634
|
|
|
$
|
547
|
|
Capitalized
interest
|
|
6
|
|
|
4
|
|
Total capital
expenditures
|
|
$
|
640
|
|
|
$
|
551
|
|
* Financial
information for 2018 has been recast to reflect the retrospective
application of the successful efforts method of
accounting.
|
|
Balance Sheet and Liquidity
As of September 30, 2019,
Chesapeake's principal amount of debt outstanding inclusive of
Brazos Valley debt was approximately $9.732
billion, compared to $8.168
billion as of December 31,
2018. As of September 30,
2019, the company had borrowed $1.504
billion under the $3.0 billion
Chesapeake credit facility, utilized approximately $53 million for various letters of credit, and
had additional borrowing capacity of approximately $1.443 billion. Under the $1.3 billion Brazos Valley credit facility, the
company had borrowed $900 million and
had additional borrowing capacity of approximately $400 million. The borrowing base of the
Chesapeake credit facility was re-affirmed in November 2019 and the redetermination process for
the Brazos Valley credit facility is scheduled for the 2019 fourth
quarter.
During the 2019 third quarter, Chesapeake exchanged
approximately 319 million common shares for various series of
Senior Notes and preferred shares totaling a principal amount of
approximately $733 million. The
company expects approximately $45
million in interest savings in 2020 as a result of these
transactions. The company believes these transactions, together
with its planned reduction in capital expenditures in 2020 and
other efficiency measures, will reduce its debt levels and improve
the ratios under the covenants in the company's revolving credit
facility.
As of October 31, 2019, including
October and November derivative contracts that have settled,
approximately 80% of the company's remaining 2019 forecasted oil,
natural gas and NGL production revenue was hedged, including
approximately 74% and 75% of its remaining 2019 forecasted oil and
natural gas production at average prices of $59.34 per bbl and $2.83 per thousand cubic feet (mcf),
respectively. Additionally, Chesapeake has basis protection swaps
on approximately 2 million barrels (mmbbls) of its remaining
projected 2019 Eagle Ford oil production at a premium to WTI of
approximately $5.67 per bbl.
In 2020, Chesapeake currently has downside protection on a
portion of its 2020 projected oil production at an average price of
$59.28 per bbl and on a portion of
its 2020 projected gas production at an average price of
$2.76 per mcf.
Operations Update and Highlights
Chesapeake's average daily production for the 2019 third quarter
was approximately 478,000 boe compared to approximately 537,000 boe
in the 2018 third 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 third quarters.
|
|
Three Months Ended
September 30, 2019
|
|
|
Oil
|
|
Natural
Gas
|
|
NGL
|
|
Total
|
|
|
mbbl
per
day
|
|
$/bbl
|
|
mmcf
per
day
|
|
$/mcf
|
|
mbbl
per
day
|
|
$/bbl
|
|
mboe
per
day
|
|
%
|
|
$/boe
|
Marcellus
|
|
—
|
|
|
—
|
|
|
928
|
|
|
1.85
|
|
|
—
|
|
|
—
|
|
|
154
|
|
|
32
|
|
|
11.11
|
|
Haynesville
|
|
—
|
|
|
—
|
|
|
694
|
|
|
2.03
|
|
|
—
|
|
|
—
|
|
|
116
|
|
|
24
|
|
|
12.17
|
|
Eagle Ford
|
|
51
|
|
|
60.13
|
|
|
161
|
|
|
2.13
|
|
|
16
|
|
|
14.24
|
|
|
94
|
|
|
20
|
|
|
38.62
|
|
Brazos
Valley
|
|
36
|
|
|
58.23
|
|
|
62
|
|
|
1.70
|
|
|
6
|
|
|
8.84
|
|
|
53
|
|
|
11
|
|
|
43.07
|
|
Powder River
Basin
|
|
20
|
|
|
54.17
|
|
|
86
|
|
|
1.96
|
|
|
5
|
|
|
11.49
|
|
|
39
|
|
|
8
|
|
|
33.09
|
|
Mid-Continent
|
|
8
|
|
|
55.24
|
|
|
57
|
|
|
1.63
|
|
|
5
|
|
|
12.06
|
|
|
22
|
|
|
5
|
|
|
26.26
|
|
Retained
assets(a)
|
|
115
|
|
|
58.18
|
|
|
1,988
|
|
|
1.93
|
|
|
32
|
|
|
12.44
|
|
|
478
|
|
|
100
|
|
|
22.79
|
|
Divested
assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
115
|
|
|
58.18
|
|
|
1,989
|
|
|
1.93
|
|
|
32
|
|
|
12.44
|
|
|
478
|
|
|
100
|
%
|
|
22.79
|
|
|
|
Three Months Ended
September 30, 2018
|
|
|
Oil
|
|
Natural
Gas
|
|
NGL
|
|
Total
|
|
|
mbbl
per
day
|
|
$/bbl
|
|
mmcf
per
day
|
|
$/mcf
|
|
mbbl
per
day
|
|
$/bbl
|
|
mboe
per
day
|
|
%
|
|
$/boe
|
Marcellus
|
|
—
|
|
|
—
|
|
|
812
|
|
|
2.46
|
|
|
—
|
|
|
—
|
|
|
135
|
|
|
25
|
|
|
14.77
|
|
Haynesville
|
|
—
|
|
|
—
|
|
|
769
|
|
|
2.74
|
|
|
—
|
|
|
—
|
|
|
128
|
|
|
24
|
|
|
16.44
|
|
Eagle Ford
|
|
58
|
|
|
74.38
|
|
|
121
|
|
|
3.26
|
|
|
21
|
|
|
28.94
|
|
|
100
|
|
|
19
|
|
|
53.48
|
|
Powder River
Basin
|
|
12
|
|
|
69.24
|
|
|
73
|
|
|
2.50
|
|
|
5
|
|
|
27.89
|
|
|
29
|
|
|
5
|
|
|
39.76
|
|
Mid-Continent
|
|
9
|
|
|
69.76
|
|
|
60
|
|
|
2.50
|
|
|
4
|
|
|
29.73
|
|
|
23
|
|
|
4
|
|
|
38.64
|
|
Retained
assets(a)
|
|
79
|
|
|
73.07
|
|
|
1,835
|
|
|
2.63
|
|
|
30
|
|
|
28.86
|
|
|
415
|
|
|
77
|
|
|
27.66
|
|
Divested
assets
|
|
10
|
|
|
67.02
|
|
|
497
|
|
|
2.91
|
|
|
29
|
|
|
29.34
|
|
|
122
|
|
|
23
|
|
|
24.38
|
|
Total
|
|
89
|
|
|
72.39
|
|
|
2,332
|
|
|
2.69
|
|
|
59
|
|
|
29.09
|
|
|
537
|
|
|
100
|
%
|
|
26.92
|
|
|
|
(a)
|
Includes assets
retained as of September 30, 2019.
|
Brazos Valley: Sets new production record
In Chesapeake's Brazos Valley area in central Texas, the company is currently utilizing four
rigs and placed 25 wells on production during the 2019 third
quarter, 14 of which were placed on production in the last five
weeks of the quarter. As a result, the company set a new net oil
production record for the month of October
2019 of approximately 40,000 bbls of oil per day, exceeding
the monthly production record set by the previous operator in
November 2018 while utilizing five
rigs. The increase was also driven by improvements to the field's
base decline through its well optimization and workover
program.
As the company's subsurface understanding evolves, the
commercial black oil area of the field continues to expand, further
strengthening the inventory of the future drilling program. Since
February 1, 2019, the company has
placed 13 wells on production which have reached peak 24-hour rates
of more than 1,000 bbls of oil per day. The company anticipates
placing 20 wells on production in the 2019 fourth quarter.
Chesapeake continues to improve operational efficiencies in its
Brazos Valley development program, resulting in a 21% decrease in
completed well costs to approximately $830 per foot, and extending its average
completed lateral length per well drilled to more than 9,000
feet.
Eagle Ford Shale: Gas gathering and crude oil transportation
restructuring provides improved long term field economics,
production anticipated to ramp in the fourth quarter
In the company's South Texas Eagle Ford asset, 2019 third
quarter volumes were projected to represent the low for the year
primarily due to timing of the company's development plan and
longer cleanup periods associated with that development. Of the 47
wells Chesapeake placed on production during the 2019 third
quarter, 46 were put to sales in August and September. The company
is currently running four rigs in South
Texas and anticipates placing 41 wells on production in the
2019 fourth quarter.
Additionally, Chesapeake continues to optimize its midstream and
downstream commitments and has recently successfully restructured
its gas gathering and crude transportation commitments in the Eagle
Ford. These agreements allow the company to move away from a
cost-of-service mechanism to fixed-fee gathering rate structures,
as well as maximize its pipeline commitments going forward.
Powder River Basin: Turner capital efficiency continues to
advance and first Niobrara well drilled since 2014 delivers record
results
Chesapeake continues to recognize operational efficiencies in
the Turner sandstone formation which have driven costs out of its
operations, including reductions in cycle times by 25% year over
year and in average drilling and completion costs by approximately
$800,000, or 10%, per well through
the first nine months of 2019 compared to 2018 results. These
efficiency enhancements have resulted in a recent four-well Turner
pad being drilled and completed for approximately $6.0 million per well, with the last 25 wells
turned to sales averaging approximately $7.2
million per well.
While the Turner sandstone formation has been Chesapeake's
primary focus in its PRB development program, the company remains
enthusiastic about the stacked pay potential in the basin. The
company recently placed on production its first Niobrara well since
2014, and in the first 87 days it has produced approximately
106,500 bbls of oil, reaching a 24-hour peak rate of greater than
1,600 bbls of oil per day. The company currently plans to drill and
complete four additional Niobrara wells in 2019 and expects that
more than 25% of its projected 2020 capital program will be
targeting the Niobrara formation. The company is currently
utilizing four rigs in the PRB, placed 26 wells on production in
the 2019 third quarter and anticipates placing 17 wells on
production in the 2019 fourth quarter.
Production volumes in the 2019 third quarter were less than
expected, primarily driven by the impact from a group of nine wells
placed on production earlier in the year in the northern edge of
Chesapeake's Turner acreage. These isolated wells encountered
poorer reservoir quality, resulting in lower than expected
performance compared to other company-operated wells in the rest of
the field. Production volumes were also negatively impacted by
unplanned outages due to electrical power issues that interrupted
portions of the field's midstream system. The company is working
with local utility companies and its midstream partners to ensure
reliable power to support all production, gathering and
transportation systems.
Marcellus Shale: Recent well performance highlights capital
efficiency gains
In the Marcellus Shale, the company continues its strategy of
maintaining its operated production to capture the value from
seasonal basin congestion and pricing, while achieving lower costs
and capital requirements due to the strong performance of recent
wells. Wider spacing averaging approximately 1,350 feet between
well bores, fit-for-purpose modern completions and improved cycle
times continue to yield impressive results for Chesapeake in the
Marcellus Shale, with six wells recently turned to sales reaching
peak 24-hour flow rates between 60 million cubic feet (mmcf) of gas
per day to a record 85 mmcf per day. The company is currently
utilizing two rigs in the Marcellus, placed 17 wells on production
in the 2019 third quarter and anticipates placing four wells on
production in the 2019 fourth quarter.
Haynesville Shale, Mid-Continent: Allocating capital to
higher-return areas in 2020
In the Haynesville Shale in Louisiana, Chesapeake placed five wells on
production during the 2019 third quarter. The company has released
its operated rigs and completion crews in both the Haynesville
Shale and Mid-Continent areas for the rest of the year.
Key Financial and Operational Results
The table below summarizes Chesapeake's key financial and
operational results during the 2019 third quarter as compared to
results in the same quarter in 2018. The three months ended
September 30, 2019 include Brazos
Valley operations. The three months ended September 30, 2018 do not include Brazos Valley
operations.
|
|
Three Months
Ended
September 30,
|
|
|
2019
|
|
2018*
|
Barrels of oil
equivalent production (in mboe)
|
|
43,991
|
|
|
49,413
|
|
Barrels of oil
equivalent production (mboe/d)
|
|
478
|
|
|
537
|
|
Oil production (in
mbbl/d)
|
|
115
|
|
|
89
|
|
Average realized oil
price ($/bbl)(a)
|
|
60.66
|
|
|
58.77
|
|
Natural gas
production (in mmcf/d)
|
|
1,989
|
|
|
2,332
|
|
Average realized
natural gas price ($/mcf)(a)
|
|
2.38
|
|
|
2.69
|
|
NGL production (in
mbbl/d)
|
|
32
|
|
|
59
|
|
Average realized NGL
price ($/bbl)(a)
|
|
12.44
|
|
|
27.37
|
|
Production expenses
($/boe)
|
|
3.54
|
|
|
2.68
|
|
Gathering, processing
and transportation expenses ($/boe)
|
|
6.12
|
|
|
7.36
|
|
Oil -
($/bbl)
|
|
3.53
|
|
|
3.83
|
|
Natural Gas -
($/mcf)
|
|
1.19
|
|
|
1.33
|
|
NGL -
($/bbl)
|
|
5.19
|
|
|
8.59
|
|
Production taxes
($/boe)
|
|
0.79
|
|
|
0.69
|
|
Exploration expenses
($ in millions)
|
|
17
|
|
|
22
|
|
General and
administrative expenses ($/boe)(b)
|
|
1.35
|
|
|
1.51
|
|
General and
administrative expenses (stock-based compensation) (non-cash)
($/boe)
|
|
0.13
|
|
|
0.12
|
|
Depreciation,
depletion, and amortization ($/boe)
|
|
13.04
|
|
|
8.20
|
|
Interest expense
($/boe)(c)
|
|
3.99
|
|
|
3.32
|
|
Marketing net margin
($ in millions)(d)
|
|
(13)
|
|
|
(14)
|
|
Net cash provided by
operating activities ($ in millions)
|
|
329
|
|
|
444
|
|
Net cash provided by
operating activities ($/boe)
|
|
7.48
|
|
|
8.99
|
|
Net loss ($ in
millions)
|
|
(61)
|
|
|
(146)
|
|
Net loss available to
common stockholders ($ in millions)
|
|
(101)
|
|
|
(169)
|
|
Net loss per share
available to common stockholders – diluted ($)
|
|
(0.06)
|
|
|
(0.19)
|
|
Adjusted EBITDAX ($
in millions)(e)
|
|
577
|
|
|
584
|
|
Adjusted EBITDAX
($/boe)
|
|
13.12
|
|
|
11.82
|
|
Adjusted net loss
attributable to Chesapeake ($ in millions)(f)
|
|
(188)
|
|
|
(8)
|
|
Adjusted net loss
attributable to Chesapeake per share - diluted
($)(g)
|
|
(0.11)
|
|
|
(0.01)
|
|
|
|
* Financial
information for 2018 has been recast to reflect the retrospective
application of the successful efforts method of
accounting.
|
|
|
|
(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 ($12) million and ($19) million for
the three months ended September 30, 2019 and 2018, excluding
non-cash amortization of ($1) million and $5 million, respectively,
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 in the
Reconciliation of Net Income (Loss) to Adjusted EBITDAX. This
is a non-GAAP measure.
|
|
|
(f)
|
Defined as net income
(loss) attributable to Chesapeake, as adjusted to remove the
effects of certain items detailed in the Reconciliation of Adjusted
Net Income (Loss) Attributable to Chesapeake. This is a non-GAAP
measure.
|
|
|
(g)
|
Our presentation of
diluted adjusted net loss attributable to Chesapeake per share
excludes 183 million and 208 million shares for the three months
ended September 30, 2019 and 2018, respectively, which are
considered antidilutive when calculating diluted earnings per
share.
|
2019 Third 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, November 5 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 2440889. 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, cost-cutting measures, reductions in
expenditures, proposed refinancing transactions, capital exchange
transactions, asset divestitures, reductions in capital
expenditures, operational efficiencies, 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, expected oil growth trajectory, anticipated timing of
execution of new gathering agreement, expected savings in
connection with new oil gathering and pipeline agreements,
projected 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 our ability to comply with the covenants under our
revolving credit facilities and other indebtedness and the related
impact on our ability to continue as a going concern, 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
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
2019
|
|
2018*
|
|
2019
|
|
2018*
|
REVENUES AND
OTHER:
|
|
|
|
|
|
|
|
|
Oil, natural gas and
NGL(a)
|
|
$
|
1,170
|
|
|
$
|
1,199
|
|
|
$
|
3,553
|
|
|
$
|
3,424
|
|
Marketing
|
|
889
|
|
|
1,219
|
|
|
3,038
|
|
|
3,738
|
|
Total
Revenues
|
|
2,059
|
|
|
2,418
|
|
|
6,591
|
|
|
7,162
|
|
Other
|
|
15
|
|
|
16
|
|
|
45
|
|
|
48
|
|
Gains (losses) on
sales of assets
|
|
13
|
|
|
(10)
|
|
|
33
|
|
|
27
|
|
Total Revenues and
Other
|
|
2,087
|
|
|
2,424
|
|
|
6,669
|
|
|
7,237
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
Oil, natural gas and
NGL production
|
|
155
|
|
|
132
|
|
|
453
|
|
|
417
|
|
Oil, natural gas and
NGL gathering, processing and transportation
|
|
270
|
|
|
364
|
|
|
815
|
|
|
1,060
|
|
Production
taxes
|
|
35
|
|
|
34
|
|
|
109
|
|
|
91
|
|
Exploration
|
|
17
|
|
|
22
|
|
|
56
|
|
|
123
|
|
Marketing
|
|
901
|
|
|
1,238
|
|
|
3,071
|
|
|
3,798
|
|
General and
administrative
|
|
66
|
|
|
81
|
|
|
258
|
|
|
273
|
|
Restructuring and
other termination costs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38
|
|
Provision for legal
contingencies, net
|
|
—
|
|
|
8
|
|
|
3
|
|
|
17
|
|
Depreciation,
depletion and amortization
|
|
573
|
|
|
405
|
|
|
1,672
|
|
|
1,335
|
|
Impairments
|
|
9
|
|
|
58
|
|
|
11
|
|
|
122
|
|
Other operating
(income) expense
|
|
15
|
|
|
—
|
|
|
79
|
|
|
(1)
|
|
Total Operating
Expenses
|
|
2,041
|
|
|
2,342
|
|
|
6,527
|
|
|
7,273
|
|
INCOME (LOSS) FROM
OPERATIONS
|
|
46
|
|
|
82
|
|
|
142
|
|
|
(36)
|
|
OTHER INCOME
(EXPENSE):
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
(177)
|
|
|
(165)
|
|
|
(513)
|
|
|
(482)
|
|
Gains (losses) on
investments
|
|
(4)
|
|
|
—
|
|
|
(28)
|
|
|
139
|
|
Gains (losses) on
purchases or exchanges of debt
|
|
70
|
|
|
(68)
|
|
|
70
|
|
|
(68)
|
|
Other
income
|
|
3
|
|
|
6
|
|
|
30
|
|
|
62
|
|
Total Other
Expense
|
|
(108)
|
|
|
(227)
|
|
|
(441)
|
|
|
(349)
|
|
LOSS BEFORE INCOME
TAXES
|
|
(62)
|
|
|
(145)
|
|
|
(299)
|
|
|
(385)
|
|
Income tax expense
(benefit)
|
|
(1)
|
|
|
1
|
|
|
(315)
|
|
|
(8)
|
|
NET INCOME
(LOSS)
|
|
(61)
|
|
|
(146)
|
|
|
16
|
|
|
(377)
|
|
Net income
attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
NET INCOME (LOSS)
ATTRIBUTABLE TO CHESAPEAKE
|
|
(61)
|
|
|
(146)
|
|
|
16
|
|
|
(378)
|
|
Preferred stock
dividends
|
|
(23)
|
|
|
(23)
|
|
|
(69)
|
|
|
(69)
|
|
Loss on exchange of
preferred stock
|
|
(17)
|
|
|
—
|
|
|
(17)
|
|
|
—
|
|
NET LOSS AVAILABLE
TO COMMON STOCKHOLDERS
|
|
$
|
(101)
|
|
|
$
|
(169)
|
|
|
$
|
(70)
|
|
|
$
|
(447)
|
|
LOSS PER COMMON
SHARE:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.06)
|
|
|
$
|
(0.19)
|
|
|
$
|
(0.04)
|
|
|
$
|
(0.49)
|
|
Diluted
|
|
$
|
(0.06)
|
|
|
$
|
(0.19)
|
|
|
$
|
(0.04)
|
|
|
$
|
(0.49)
|
|
WEIGHTED AVERAGE
COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (in
millions):
|
|
|
|
|
|
|
|
|
Basic
|
|
1,698
|
|
|
910
|
|
|
1,570
|
|
|
909
|
|
Diluted
|
|
1,698
|
|
|
910
|
|
|
1,570
|
|
|
909
|
|
|
|
* Financial
information for 2018 has been recast to reflect the retrospective
application of the successful efforts method of
accounting.
|
|
|
|
(a)
|
See Supplemental Data
- Oil, Natural Gas and NGL Production and Sales Prices 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)
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
14
|
|
|
$
|
4
|
|
Other current
assets
|
|
1,389
|
|
|
1,594
|
|
Total Current
Assets
|
|
1,403
|
|
|
1,598
|
|
|
|
|
|
|
Property and
equipment, net
|
|
14,876
|
|
|
10,818
|
|
Other long-term
assets
|
|
300
|
|
|
319
|
|
Total
Assets
|
|
$
|
16,579
|
|
|
$
|
12,735
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
2,348
|
|
|
$
|
2,887
|
|
Long-term debt,
net
|
|
9,133
|
|
|
7,341
|
|
Other long-term
liabilities
|
|
363
|
|
|
374
|
|
Total
Liabilities
|
|
11,844
|
|
|
10,602
|
|
|
|
|
|
|
Preferred
stock
|
|
1,631
|
|
|
1,671
|
|
Noncontrolling
interests
|
|
39
|
|
|
41
|
|
Common stock and
other stockholders' equity
|
|
3,065
|
|
|
421
|
|
Total
Equity
|
|
4,735
|
|
|
2,133
|
|
|
|
|
|
|
Total Liabilities
and Equity
|
|
$
|
16,579
|
|
|
$
|
12,735
|
|
|
|
|
|
|
CHESAPEAKE ENERGY
CORPORATION
CONDENSED CONSOLIDATED CASH FLOW DATA
($ in millions)
(unaudited)
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
2019
|
|
2018*
|
|
2019
|
|
2018*
|
|
|
|
|
|
|
|
|
|
Beginning cash and
cash equivalents
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
by operating activities
|
|
329
|
|
|
444
|
|
|
1,182
|
|
|
1,395
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
Drilling and
completion costs(a)
|
|
(570)
|
|
|
(479)
|
|
|
(1,640)
|
|
|
(1,407)
|
|
Business combination,
net
|
|
—
|
|
|
—
|
|
|
(353)
|
|
|
—
|
|
Acquisitions of
proved and unproved properties
|
|
(14)
|
|
|
(16)
|
|
|
(31)
|
|
|
(118)
|
|
Proceeds from
divestitures of proved and unproved properties
|
|
28
|
|
|
11
|
|
|
110
|
|
|
395
|
|
Additions to other
property and equipment
|
|
(9)
|
|
|
(6)
|
|
|
(27)
|
|
|
(11)
|
|
Proceeds from sales
of other property and equipment
|
|
2
|
|
|
1
|
|
|
6
|
|
|
75
|
|
Proceeds from sales
of investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
74
|
|
Net cash used in
investing activities
|
|
(563)
|
|
|
(489)
|
|
|
(1,935)
|
|
|
(992)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
by (used in) financing activities
|
|
244
|
|
|
46
|
|
|
763
|
|
|
(404)
|
|
Change in cash and
cash equivalents
|
|
10
|
|
|
1
|
|
|
10
|
|
|
(1)
|
|
Ending cash and
cash equivalents
|
|
$
|
14
|
|
|
$
|
4
|
|
|
$
|
14
|
|
|
$
|
4
|
|
|
|
* 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 $4 million for the three months ended
September 30, 2019 and 2018, respectively, and includes
capitalized interest of $19 million and $13 million for the nine
months ended September 30, 2019 and 2018, respectively.
|
CHESAPEAKE ENERGY
CORPORATION
SUPPLEMENTAL DATA
– OIL, NATURAL GAS AND NGL PRODUCTION AND SALES
PRICES
(unaudited)
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net
Production:
|
|
|
|
|
|
|
|
Oil
(mmbbl)
|
10
|
|
|
9
|
|
|
31
|
|
|
25
|
|
Natural gas
(bcf)
|
183
|
|
|
215
|
|
|
550
|
|
|
647
|
|
NGL
(mmbbl)
|
3
|
|
|
5
|
|
|
10
|
|
|
15
|
|
Oil equivalent
(mmboe)
|
44
|
|
|
49
|
|
|
133
|
|
|
148
|
|
Average daily
production (mboe)
|
478
|
|
|
537
|
|
|
486
|
|
|
540
|
|
Oil, Natural Gas
and NGL Sales ($ in millions):
|
|
|
|
|
|
|
|
Oil sales
|
$
|
613
|
|
|
$
|
594
|
|
|
$
|
1,879
|
|
|
$
|
1,698
|
|
Natural gas
sales
|
353
|
|
|
578
|
|
|
1,384
|
|
|
1,822
|
|
NGL sales
|
37
|
|
|
159
|
|
|
149
|
|
|
404
|
|
Total oil, natural
gas and NGL sales
|
$
|
1,003
|
|
|
$
|
1,331
|
|
|
$
|
3,412
|
|
|
$
|
3,924
|
|
|
|
|
|
|
|
|
|
Financial
Derivatives:
|
|
|
|
|
|
|
|
Oil derivatives –
realized gains (losses)(a)
|
$
|
26
|
|
|
$
|
(112)
|
|
|
$
|
18
|
|
|
$
|
(273)
|
|
Natural gas
derivatives – realized gains (losses)(a)
|
83
|
|
|
(1)
|
|
|
71
|
|
|
83
|
|
NGL derivatives –
realized losses(a)
|
—
|
|
|
(10)
|
|
|
—
|
|
|
(14)
|
|
Total realized gains
(losses) on financial derivatives
|
$
|
109
|
|
|
$
|
(123)
|
|
|
$
|
89
|
|
|
$
|
(204)
|
|
|
|
|
|
|
|
|
|
Oil derivatives –
unrealized gains (losses)(b)
|
$
|
98
|
|
|
$
|
12
|
|
|
$
|
(67)
|
|
|
$
|
(115)
|
|
Natural gas
derivatives – unrealized gains (losses)(b)
|
(40)
|
|
|
(17)
|
|
|
119
|
|
|
(168)
|
|
NGL derivatives –
unrealized losses(b)
|
—
|
|
|
(4)
|
|
|
—
|
|
|
(13)
|
|
Total unrealized
gains (losses) on financial derivatives
|
$
|
58
|
|
|
$
|
(9)
|
|
|
$
|
52
|
|
|
$
|
(296)
|
|
|
|
|
|
|
|
|
|
Total financial
derivatives
|
$
|
167
|
|
|
$
|
(132)
|
|
|
$
|
141
|
|
|
$
|
(500)
|
|
|
|
|
|
|
|
|
|
Total oil, natural
gas and NGL sales
|
$
|
1,170
|
|
|
$
|
1,199
|
|
|
$
|
3,553
|
|
|
$
|
3,424
|
|
Average Sales
Price (excluding gains (losses) on derivatives):
|
|
|
|
|
|
|
|
Oil ($ per
bbl)
|
$
|
58.18
|
|
|
$
|
72.39
|
|
|
$
|
59.78
|
|
|
$
|
68.63
|
|
Natural gas ($ per
mcf)
|
$
|
1.93
|
|
|
$
|
2.69
|
|
|
$
|
2.51
|
|
|
$
|
2.82
|
|
NGL ($ per
bbl)
|
$
|
12.44
|
|
|
$
|
29.09
|
|
|
$
|
15.50
|
|
|
$
|
26.87
|
|
Oil equivalent ($ per
boe)
|
$
|
22.79
|
|
|
$
|
26.92
|
|
|
$
|
25.70
|
|
|
$
|
26.59
|
|
Average Sales
Price (excluding unrealized gains (losses) on
derivatives):
|
|
|
|
|
|
|
|
Oil ($ per
bbl)
|
$
|
60.66
|
|
|
$
|
58.77
|
|
|
$
|
60.37
|
|
|
$
|
57.61
|
|
Natural gas ($ per
mcf)
|
$
|
2.38
|
|
|
$
|
2.69
|
|
|
$
|
2.64
|
|
|
$
|
2.94
|
|
NGL ($ per
bbl)
|
$
|
12.44
|
|
|
$
|
27.37
|
|
|
$
|
15.50
|
|
|
$
|
25.96
|
|
Oil equivalent ($ per
boe)
|
$
|
25.26
|
|
|
$
|
24.44
|
|
|
$
|
26.37
|
|
|
$
|
25.21
|
|
|
|
(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
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) ATTRIBUTABLE TO
CHESAPEAKE
($ in
millions)
(unaudited)
|
|
|
Three Months Ended
September 30,
|
|
|
2019
|
|
2018
|
|
|
$
|
|
$/Share
|
|
$
|
|
$/Share
|
Net loss available
to common stockholders (GAAP)
|
|
$
|
(101)
|
|
|
$
|
(0.06)
|
|
|
$
|
(169)
|
|
|
$
|
(0.19)
|
|
Effect of dilutive
securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted loss
available to common stockholders (GAAP)(a)
|
|
$
|
(101)
|
|
|
$
|
(0.06)
|
|
|
$
|
(169)
|
|
|
$
|
(0.19)
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Unrealized (gains)
losses on oil, natural gas and NGL derivatives
|
|
(58)
|
|
|
(0.03)
|
|
|
9
|
|
|
0.01
|
|
Provision for legal
contingencies, net
|
|
—
|
|
|
—
|
|
|
8
|
|
|
0.01
|
|
(Gains) losses on
sales of assets
|
|
(13)
|
|
|
(0.01)
|
|
|
10
|
|
|
0.01
|
|
Other operating
expense
|
|
15
|
|
|
0.01
|
|
|
—
|
|
|
—
|
|
Impairments
|
|
9
|
|
|
0.01
|
|
|
58
|
|
|
0.06
|
|
Losses on
investments
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
(Gains) losses on
purchases or exchanges of debt
|
|
(70)
|
|
|
(0.04)
|
|
|
68
|
|
|
0.08
|
|
Loss on exchange of
preferred stock
|
|
17
|
|
|
0.01
|
|
|
—
|
|
|
—
|
|
Other
revenue
|
|
(15)
|
|
|
(0.01)
|
|
|
(16)
|
|
|
(0.02)
|
|
Other
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Income tax
benefit(b)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Adjusted net loss
available to common stockholders(c)
(Non-GAAP)
|
|
(211)
|
|
|
(0.12)
|
|
|
(31)
|
|
|
(0.04)
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
dividends
|
|
23
|
|
|
0.01
|
|
|
23
|
|
|
0.03
|
|
Total adjusted net loss
attributable to Chesapeake(a)(c)
(Non-GAAP)
|
|
$
|
(188)
|
|
|
$
|
(0.11)
|
|
|
$
|
(8)
|
|
|
$
|
(0.01)
|
|
CHESAPEAKE ENERGY
CORPORATION
RECONCILIATION OF ADJUSTED NET INCOME (LOSS) ATTRIBUTABLE TO
CHESAPEAKE
($ in millions)
(unaudited)
|
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2018
|
|
|
$
|
|
$/Share
|
|
$
|
|
$/Share
|
Net loss available
to common stockholders (GAAP)
|
|
$
|
(70)
|
|
|
$
|
(0.04)
|
|
|
$
|
(447)
|
|
|
$
|
(0.49)
|
|
Effect of dilutive
securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted loss
available to common stockholders (GAAP)(d)
|
|
$
|
(70)
|
|
|
$
|
(0.04)
|
|
|
$
|
(447)
|
|
|
$
|
(0.49)
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Unrealized (gains)
losses on oil, natural gas and NGL derivatives
|
|
(45)
|
|
|
(0.03)
|
|
|
296
|
|
|
0.33
|
|
Restructuring and
other termination costs
|
|
—
|
|
|
—
|
|
|
38
|
|
|
0.04
|
|
Provision for legal
contingencies, net
|
|
3
|
|
|
—
|
|
|
17
|
|
|
0.02
|
|
Gains on sales of
assets
|
|
(33)
|
|
|
(0.02)
|
|
|
(27)
|
|
|
(0.03)
|
|
Other operating
(income) expense(e)
|
|
79
|
|
|
0.05
|
|
|
(1)
|
|
|
—
|
|
Impairments
|
|
11
|
|
|
0.01
|
|
|
122
|
|
|
0.13
|
|
(Gains) losses on
investments
|
|
28
|
|
|
0.02
|
|
|
(139)
|
|
|
(0.15)
|
|
(Gains) losses on
purchases or exchanges of debt
|
|
(70)
|
|
|
(0.04)
|
|
|
68
|
|
|
0.07
|
|
Loss on exchange of
preferred stock
|
|
17
|
|
|
0.01
|
|
|
—
|
|
|
—
|
|
Other
revenue
|
|
(45)
|
|
|
(0.03)
|
|
|
(48)
|
|
|
(0.05)
|
|
Other
|
|
(3)
|
|
|
—
|
|
|
(60)
|
|
|
(0.07)
|
|
Income tax
benefit(f)
|
|
(314)
|
|
|
(0.20)
|
|
|
—
|
|
|
—
|
|
Adjusted net loss
available to common stockholders(c)
(Non-GAAP)
|
|
(442)
|
|
|
(0.27)
|
|
|
(181)
|
|
|
(0.20)
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
dividends
|
|
69
|
|
|
0.04
|
|
|
69
|
|
|
0.08
|
|
Total adjusted net
loss attributable to Chesapeake(d)(c)
(Non-GAAP)
|
|
$
|
(373)
|
|
|
$
|
(0.23)
|
|
|
$
|
(112)
|
|
|
$
|
(0.12)
|
|
|
|
(a)
|
Our presentation of
diluted net losses available to common stockholders per share and
diluted adjusted net loss per share excludes 183 million and 208
million shares considered antidilutive for the three months ended
September 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 September 30, 2019
and 2018. Our effective tax rate was 0% due to our valuation
allowance position.
|
|
|
(c)
|
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 our calculations 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 measures of other companies.
|
|
|
(d)
|
Our presentation of
diluted net losses available to common stockholders per share and
diluted adjusted net loss per share excludes 184 million and 207
million shares considered antidilutive for the nine months ended
September 30, 2019 and 2018. The number of shares used for the
non-GAAP calculation was determined in a manner consistent with
GAAP.
|
|
|
(e)
|
The nine months ended
September 30, 2019 includes $34 million 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.
|
|
|
(f)
|
For the nine months
ended September 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
$314 million. Further, no income tax expense or benefit is
shown for the adjustments being made to arrive at adjusted net loss
available to common stockholders as a result of not recording an
income tax expense or benefit on current period results due to
maintaining a full valuation allowance against our net deferred tax
asset position.
|
CHESAPEAKE ENERGY
CORPORATION
RECONCILIATION OF CASH PROVIDED BY OPERATING ACTIVITIES TO ADJUSTED
EBITDAX
($ in millions)
(unaudited)
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
CASH PROVIDED BY
OPERATING ACTIVITIES (GAAP)
|
|
$
|
329
|
|
|
$
|
444
|
|
|
$
|
1,182
|
|
|
$
|
1,395
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Changes in assets and
liabilities
|
|
77
|
|
|
(7)
|
|
|
214
|
|
|
(69)
|
|
Other
revenue
|
|
(15)
|
|
|
(16)
|
|
|
(45)
|
|
|
(48)
|
|
Interest
expense
|
|
177
|
|
|
165
|
|
|
513
|
|
|
482
|
|
Exploration
|
|
7
|
|
|
14
|
|
|
21
|
|
|
42
|
|
Income tax
expense
|
|
(1)
|
|
|
2
|
|
|
(1)
|
|
|
2
|
|
Stock-based
compensation
|
|
(7)
|
|
|
(7)
|
|
|
(24)
|
|
|
(25)
|
|
Restructuring and
other termination costs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38
|
|
Losses on
investments
|
|
—
|
|
|
—
|
|
|
6
|
|
|
—
|
|
Net income
attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
Other
items
|
|
10
|
|
|
(11)
|
|
|
(1)
|
|
|
3
|
|
Adjusted EBITDAX
(Non-GAAP)(a)
|
|
$
|
577
|
|
|
$
|
584
|
|
|
$
|
1,865
|
|
|
$
|
1,819
|
|
|
|
(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
September 30,
|
|
Nine Months
Ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
NET INCOME (LOSS)
(GAAP)
|
|
$
|
(61)
|
|
|
$
|
(146)
|
|
|
$
|
16
|
|
|
$
|
(377)
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
177
|
|
|
165
|
|
|
513
|
|
|
482
|
|
Income tax expense
(benefit)
|
|
(1)
|
|
|
1
|
|
|
(315)
|
|
|
(8)
|
|
Depreciation,
depletion and amortization
|
|
573
|
|
|
405
|
|
|
1,672
|
|
|
1,335
|
|
Exploration
|
|
17
|
|
|
22
|
|
|
56
|
|
|
123
|
|
Unrealized (gains)
losses on oil, natural gas and NGL derivatives
|
|
(58)
|
|
|
9
|
|
|
(45)
|
|
|
296
|
|
Restructuring and
other termination costs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38
|
|
Provision for legal
contingencies, net
|
|
—
|
|
|
8
|
|
|
3
|
|
|
17
|
|
(Gains) losses on
sales of assets
|
|
(13)
|
|
|
10
|
|
|
(33)
|
|
|
(27)
|
|
Other operating
(income) expense
|
|
15
|
|
|
—
|
|
|
79
|
|
|
(1)
|
|
Impairments
|
|
9
|
|
|
58
|
|
|
11
|
|
|
122
|
|
(Gains) losses on
investments
|
|
4
|
|
|
—
|
|
|
28
|
|
|
(139)
|
|
(Gains) losses on
purchases or exchanges of debt
|
|
(70)
|
|
|
68
|
|
|
(70)
|
|
|
68
|
|
Net (income) loss
attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
Other
revenue
|
|
(15)
|
|
|
(16)
|
|
|
(45)
|
|
|
(48)
|
|
Other
|
|
—
|
|
|
—
|
|
|
(5)
|
|
|
(61)
|
|
Adjusted EBITDAX
(Non-GAAP)(a)
|
|
$
|
577
|
|
|
$
|
584
|
|
|
$
|
1,865
|
|
|
$
|
1,819
|
|
|
|
(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 NOVEMBER 5,
2019
|
|
Chesapeake
periodically provides guidance on certain factors that affect the
company's future financial performance. New information or changes
from the company's August 6, 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 10/31/19 strip
prices)
|
|
Oil -
$/bbl
|
$1.52
|
Natural gas -
$/mcf
|
$0.15
|
Estimated Basis to
NYMEX Prices:
|
|
Oil -
$/bbl
|
$1.85 -
$2.05
|
Natural gas -
$/mcf
|
($0.15) -
($0.25)
|
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) -
($35)
|
Adjusted
EBITDAX, based on 10/31/19 strip prices ($ in
millions)(d)
|
$2,400 -
$2,600
|
Depreciation,
depletion and amortization expense
|
$12.50 -
$13.50
|
Interest
expense
|
$3.70 -
$3.90
|
Exploration expense
($ 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 (loss) 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 (loss)
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
(loss) 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 October 31, 2019, including
October and November derivative contracts that have settled,
approximately 80% of the company's 2019 forecasted oil, natural gas
and NGL production revenue was hedged, including approximately 74%
and 75% of its remaining 2019 forecasted oil and natural gas
production at average prices of $59.34 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 $59.28 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
(mmbbls)
|
|
Avg.
NYMEX
Price of
Swaps
|
|
|
|
|
Q4 2019
|
7
|
|
$
|
60.24
|
|
Total 2019
|
7
|
|
$
|
60.24
|
|
|
|
|
|
Q1 2020
|
4
|
|
$
|
58.50
|
|
Q2 2020
|
4
|
|
$
|
58.57
|
|
Q3 2020
|
4
|
|
$
|
58.64
|
|
Q4 2020
|
3
|
|
$
|
58.71
|
|
Total 2020
|
15
|
|
$
|
58.60
|
|
Oil Two-Way
Collars
|
|
Volume
(mmbbls)
|
|
Avg. NYMEX
Bought Put Price
|
|
Avg. NYMEX
Sold Call Price
|
|
|
|
|
|
|
Q4 2019
|
1
|
|
$
|
58.00
|
|
|
$
|
67.75
|
|
Total 2019
|
1
|
|
$
|
58.00
|
|
|
$
|
67.75
|
|
|
|
|
|
|
|
Q1 2020
|
0.5
|
|
$
|
65.00
|
|
|
$
|
83.25
|
|
Q2 2020
|
0.5
|
|
$
|
65.00
|
|
|
$
|
83.25
|
|
Q3 2020
|
0.5
|
|
$
|
65.00
|
|
|
$
|
83.25
|
|
Q4 2020
|
0.5
|
|
$
|
65.00
|
|
|
$
|
83.25
|
|
Total 2020
|
2
|
|
$
|
65.00
|
|
|
$
|
83.25
|
|
Oil
Puts
|
|
Volume
(mmbbls)
|
|
Avg.
NYMEX
Bought Put
Price
|
|
|
|
|
Q4 2019
|
1
|
|
$
|
54.43
|
|
Total 2019
|
1
|
|
$
|
54.43
|
|
Oil
Swaptions
|
|
Volume
(mmbbls)
|
|
Avg.
NYMEX
Strike
Price
|
|
|
|
|
Q1 2020
|
1
|
|
$
|
63.15
|
|
Q2 2020
|
1
|
|
$
|
63.15
|
|
Total 2020
|
2
|
|
$
|
63.15
|
|
Oil Basis
Protection Swaps
|
|
Volume
(mmbbls)
|
|
Avg.
NYMEX
plus/(minus)
|
|
|
|
|
Q4 2019
|
2
|
|
$
|
5.67
|
|
Total 2019
|
2
|
|
$
|
5.67
|
|
|
|
|
|
Q1 2020
|
1
|
|
$
|
2.45
|
|
Q2 2020
|
1
|
|
$
|
2.45
|
|
Q3 2020
|
1
|
|
$
|
2.45
|
|
Q4 2020
|
2
|
|
$
|
2.45
|
|
Total 2020
|
5
|
|
$
|
2.45
|
|
The company's natural gas hedging positions were as follows:
Open Natural Gas
Swaps
|
|
Volume
(bcf)
|
|
Avg.
NYMEX
Price of
Swaps
|
|
|
|
|
Q4 2019
|
118
|
|
$
|
2.84
|
|
Total 2019
|
118
|
|
$
|
2.84
|
|
|
|
|
|
Q1 2020
|
66
|
|
$
|
2.76
|
|
Q2 2020
|
66
|
|
$
|
2.76
|
|
Q3 2020
|
67
|
|
$
|
2.76
|
|
Q4 2020
|
66
|
|
$
|
2.76
|
|
Total 2020
|
265
|
|
$
|
2.76
|
|
Natural Gas
Two-Way Collars
|
|
Volume
(bcf)
|
|
Avg. NYMEX
Bought Put Price
|
|
Avg. NYMEX
Sold Call Price
|
|
|
|
|
|
|
Q4 2019
|
9
|
|
$
|
2.75
|
|
|
$
|
2.91
|
|
Total 2019
|
9
|
|
$
|
2.75
|
|
|
$
|
2.91
|
|
Natural Gas
Three-Way Collars
|
|
Volume
(bcf)
|
|
Avg.
NYMEX
Sold Put
Price
|
|
Avg.
NYMEX
Bought Put
Price
|
|
Avg.
NYMEX
Sold Call
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
(bcf)
|
|
Avg.
NYMEX
Strike
Price
|
|
|
|
|
Q4 2019
|
6
|
|
$
|
12.00
|
|
Total 2019
|
6
|
|
$
|
12.00
|
|
|
|
|
|
Q1 2020
|
5
|
|
$
|
12.00
|
|
Q2 2020
|
5
|
|
$
|
12.00
|
|
Q3 2020
|
6
|
|
$
|
12.00
|
|
Q4 2020
|
6
|
|
$
|
12.00
|
|
Total 2020
|
22
|
|
$
|
12.00
|
|
Natural Gas Net
Written Call Swaptions
|
|
Volume
(bcf)
|
|
Avg.
NYMEX
Strike
Price
|
|
|
|
|
Q1 2020
|
26
|
|
$
|
2.77
|
|
Q2 2020
|
26
|
|
$
|
2.77
|
|
Q3 2020
|
27
|
|
$
|
2.77
|
|
Q4 2020
|
27
|
|
$
|
2.77
|
|
Total 2020
|
106
|
|
$
|
2.77
|
|
|
|
|
|
Total 2021
|
15
|
|
$
|
2.80
|
|
|
|
|
|
Total 2022
|
15
|
|
$
|
2.80
|
|
Natural Gas Basis
Protection Swaps
|
|
Volume
(bcf)
|
|
Avg. NYMEX
plus/(minus)
|
|
|
|
|
Q4 2019
|
29
|
|
$
|
(0.10)
|
|
Total 2019
|
29
|
|
$
|
(0.10)
|
|
|
|
|
|
Q1 2020
|
30
|
|
$
|
0.08
|
|
Total 2020
|
30
|
|
$
|
0.08
|
|
INVESTOR
CONTACT:
|
MEDIA
CONTACT:
|
Brad Sylvester,
CFA
(405)
935-8870
ir@chk.com
|
Gordon
Pennoyer
(405)
935-8878
media@chk.com
|
View original content to download
multimedia:http://www.prnewswire.com/news-releases/chesapeake-energy-corporation-reports-2019-third-quarter-financial-and-operational-results-maintains-2019-guidance-and-announces-plans-to-reduce-2020-capital-budget-300951452.html
SOURCE Chesapeake Energy Corporation