Chesapeake posts Q1 results
Chesapeake Energy Corp.'s leadership team said Wednesday it couldn't be happier with its acquisition of WildHorse Resource Development Corp.
That company's assets in the Eagle Ford Shale field, incorporated into Chesapeake earlier this year to become its Brazos Valley business unit, helped propel the firm's first-quarter operational and financial results to a point to where it saw its highest operating margin per barrel of oil equivalent since 2014, officials said.
Doug Lawler, Chesapeake's president and CEO, said Wednesday early results the company has seen from recent wells it has drilled and completed there are encouraging.
“It demonstrates our capability to apply our capital and operating efficiency to immediately transform a new asset in our portfolio,” Lawler said, adding that Chesapeake now expects the project to be cash flow positive this year.
In its earnings release, Chesapeake stated it so far has eliminated about $500,000 in costs per Eagle Ford Shale well, primarily by drilling and completing the wells more quickly than WildHorse could.
Chesapeake also reported early production rates from some of the first wells in the field it drilled and completed there were stronger than anticipated.
Those improvements, combined with continued production growth from its Powder River Basin operations, boosted Chesapeake's average oil production for the quarter to 109,000 barrels daily and cemented its plans to grow the oil mix of its production stream to about 26% by the end of this year.
On the financial side for the quarter, Chesapeake reported a net loss of $44 million, or 3 cents per share, on a total income of nearly $2.2 billion and $676 million in adjusted earnings before interest, taxes, depreciation, amortization and exploration expenses.
Accounting methods
The company's results, however, were calculated using a different method than what Chesapeake previously had used, officials said.
Wednesday's results, they said, were reached through using successful-efforts accounting, which allows a company to capitalize only those expenses associated
with successfully locating new oil and natural gas reserves.
It also provided firstquarter results using the full-cost accounting method it previously used, where companies capitalize all operating expenses related to locating new oil and gas reserves, regardless of the outcome.
Using that methodology, the company reported it earned a net income of $156 million, or 11 cents per share, on the total revenues of nearly $2.2 billion and $688 million in adjusted earnings before interest, taxes, depreciation, amortization and exploration expenses.
In the first quarter of 2018 (recast using successful efforts method of accounting), the company reported it lost $6 million, or a penny a share, on a total income of about $2.5 billion and $717 million in adjusted earnings before interest, taxes, depreciation, amortization and exploration expenses.
The company also reported a loss of $301
million on oil and gas derivatives during the quarter.
The reason that two different methods exist for recording oil and gas exploration and development expenses is that regulators are divided on which method they believe best achieves transparency around a company's earnings and cash flows.
The Financial Accounting Standards Board, which establishes and governs generally accepted accounting principles, supports using the successful efforts method of accounting.
The Securities and Exchange Commission, which regulates the financial reporting format and content of publicly traded companies, supports continuing to use the full cost accounting method.
Regardless of which method of accounting was used, Lawler was upbeat about the company's first-quarter results on Wednesday.
“The underlying business continues to see excellent progress,” Lawler said, in closing remarks he made to analysts during a call to discuss the results.
While he agreed the company had made a great deal of improvement, he also observed he believes it can propel itself to ever-greater accomplishments.
“I believe the company's performance continues to reflect a wellrun organization that will continue to provide more value to shareholders in the future,” Lawler said.