Chesapeake Energy Corp. reports oil growth in 2018
Chesapeake Energy Corp. officials highlighted Improved margins, reduced debt and growing percentages of oil in the production mix Wednesday as they reported profits for 2018's fourth quarter and the entire year. The company's 10 percent growth in oil production and lower absolute cash costscombined with other factors during the year to result in the highest per-barrel, pre-adjusted earnings the company has enjoyed since 2014 when commodity prices were significantly higher, Chesapeake CEO Doug Lawler stated in the earnings release. “Our strategic focus on increasing our oil production is working,” Lawler added, noting the company had boosted oil growth during 2018 primarily thanks to a 78 percent increase in oil produced during 2018 from wells it drilled and completed in its Powder River Basin operational area. Lawler said oil represented 21 percent of the company's production mix in December and that Chesapeake expects that amount to grow to 26 percent by the end of 2019 as it moves toward developing assets it acquired with its merger with WildHorse Resource Development Corp., which closed early this month. “We are off to a fast start” for the year, he said. Hi-Def growth outlined Lawler and other executives on Wednesday touched on moves Chesapeake made during 2018 that redefined its operational profile. In July, the company announced plans to sell its holdings in Ohio's Utica Shale field for $2 billion, then announced in October its nearly $4 billion deal to acquire WildHorse. After those changes, the company is operating within two basins that primarily produce natural gas, the Marcellus Shale and Gulf Coast field in northwestern Louisiana. Chesapeake officials noted 2018's significant improvement in spot pricing for natural gas in Pennsylvania and access to premium-priced delivery points along the Gulf Coast as advantages for the company in those plays. The company plans to spend between $215 million and $235 million this year to operate three rigs and a single fracturing crew in the Marcellus, with plans to bring 48 wells to production. It expects to spend between $135 million and $155 million to operate about two rigs and one fracturing crew in its Gulf Coast field, with plans to complete 24 wells. Oil dominates production in two other Chesapeake fields — the WildHorse Resource holdings, which Chesapeake is now calling its Brazos Valley
field, and its south Texas field in the Eagle Ford Shale. The company plans to spend between $700 million and $730 million to run four rigs and two fracturing crews this year in its Brazos Valley Field, with plans to produce 83 wells. It is expected to spend between $510 million and $530 million to operate four rigs and three fracturing crews in its South Texas field during 2019 to produce 125 wells. The company expects improved oil production during the coming year, meanwhile, in its Powder River Basin field in Wyoming, where it expects to spend between $410 million and $430 million this year to run five rigs and a single fracturing crew to produce 64 wells. It plans to spend between $110 million and $130 million to run a single rig and one fracturing crew in Oklahoma to produce 25 wells during 2019. Including leasehold costs and capitalized interest, the company's forecast capital expenditures companywide in 2019 is between $2.3 billion and $2.5 billion, compared to $2.37 billion in 2018. Financial results Chesapeake announced Wednesday it earned a net income of $514 million in the fourth quarter of 2018 based upon an operating cash flow of $367 million and earnings before interest, taxes, depreciation and amortization of $574 million. For the same quarter in 2017, the company reported a net income of $334 million based upon an operating cash flow of $577 million and earnings before interest, taxes, depreciation and amortization of $706 million. It reported that its 2018 net income was $877 million based upon an operating cash flow of about $1.85 billion and earnings before interest, taxes, depreciation and amortization of about $2.44 billion. Previously reported 2017 net income was $953 million based upon an operating cash flow of about $1.22 billion and earnings before interest, taxes, depreciation and amortization of $2.16 billion. Lawler and other Chesapeake Energy executives told analysts Wednesday the company continues to focus on reducing its net debt (down $2.6 billion in secured debt the past year alone), enhancing its margins, reducing downtimes across its fields and to remain financially disciplined to set itself up to create sustainable future growth as its oil production continues to climb. “2018 was a year defined by improvements in every aspect of our business,” Lawler said. “If you believe in energy, you should believe in Chesapeake Energy.”