Well Cost | Capital Markets | Capital Expenditure

Chesapeake Prelim Q4: No Haynesville Update; Touts Improved Eagle Ford Oil Rates, Costs

Share Print Bookmark    |    Wednesday,January 29,2020

Chesapeake Energy Corp. reported preliminary 2019 fourth quarter production results and operational achievements.

The company neglected to report anything about its Haynesville asset, so it is likely Chesapeake is in the midst of selling the asset.

Back in November, Reuters reported that Comstock was in talks to buy Chesapeake's Haynesville asset. No further developments have been announced.

Highlights include:

Reduced Costs and Grew Production in the Brazos Valley:

• Increased oil production by 6% year over year, growing average per well Eagle Ford peak oil rates by approximately 40% to approximately 900 bbls of oil per day
• Reduced 2019 average well costs per lateral foot by approximately 9%, recognizing approximately $54 million in drilling and completions savings year over year

Production:

• Average estimated 2019 fourth quarter oil production range of 125,000 to 126,000 barrels (bbls) of oil per day
• Average estimated 2019 fourth quarter equivalent production range of 476,000 to 478,000 barrels of oil equivalent (boe) per day
• Estimated 2019 fourth quarter capital expenditures of approximately $480 to $490 million

Doug Lawler, Chesapeake's President and Chief Executive Officer, commented, "We delivered strong cash flow during the quarter on lower costs and higher oil volumes. Natural gas and natural gas liquids volumes were sequentially lower due to our decisions to direct capital to the highest-margin opportunities in our portfolio, enhancing our profitability. Our strong results in the fourth quarter have continued into early 2020 and are setting the foundation for the company to reach free cash flow this year. We remain committed to achieving further meaningful debt reduction through asset sales, capital markets transactions and cost discipline."

Balance Sheet and Hedge Position Update

As of December 31, 2019, Chesapeake's principal amount of debt outstanding was approximately $8.9 billion, compared to $9.7 billion as of September 30, 2019. In December 2019, Chesapeake entered into a secured first lien last out 4.5-year term loan facility for $1.5 billion to finance a tender offer for unsecured notes issued by Brazos Valley and Brazos Valley Longhorn Finance Corp., each a wholly owned subsidiary of Chesapeake, and to fund the retirement of Brazos Valley's secured revolving credit facility. The company also exchanged new 11.5% Senior Secured Second Lien Notes due 2025 for certain outstanding senior unsecured notes. These transactions resulted in the removal of approximately $900 million of debt from the company's balance sheet.

As of January 29, 2020, including January and February derivative contracts that have settled in 2020, Chesapeake had downside protection on approximately 32 million bbls of oil at an average price of $59.90 per bbl, and downside protection on approximately 265 billion cubic feet (bcf) of gas at an average price of $2.76 per thousand cubic feet of gas.

Operations Update and Highlights

Chesapeake's average daily production for the 2019 fourth quarter is projected at approximately 476,000 to 478,000 boe per day, including 125,000 to 126,000 bbls of oil per day. The company's 2019 fourth quarter projection for total capital expenditures is approximately $480 to $490 million.

Brazos Valley / Eagle Ford

In Chesapeake's Brazos Valley area in central Texas, total net field production reached a record of approximately 56,000 boe per day for the 2019 fourth quarter, including 40,000 bbls of oil per day. Recent highlights include two three-well Beran pads located in Burleson County, Texas, which, with longer laterals and optimized completions, have achieved average peak 24-hour initial production rates per well of 1,625 boe per day, of which approximately 1,550 barrels were oil.

Since Chesapeake closed the Brazos Valley acquisition on February 1, 2019, the company placed 81 wells on production in 2019 while utilizing four rigs and developing 655,000 feet of gross lateral footage, compared to 99 wells placed on production during 2018 by the previous operator using five rigs which developed 660,000 feet of gross lateral footage. As expected in the company's acquisition analysis, average completed well costs in 2019 for Lower Eagle Ford wells were approximately $8.0 million, or $940 per foot of completed lateral. Chesapeake estimates a total of approximately $250 million in cost savings and revenue improvements to the Brazos Valley asset was realized during the eleven months it operated the asset in 2019, achieving its projected synergies.

In the company's South Texas Eagle Ford asset, total net production grew from the 2019 third quarter low, reaching approximately 104,000 boe per day in the 2019 fourth quarter, of which 60,000 barrels were oil.

PRB

In the Powder River Basin (PRB) in Wyoming, the company largely recovered from the production challenges experienced in the 2019 third quarter and early fourth quarter, averaging approximately 21,000 bbls of oil per day in December. Building on the successful Niobrara well announced in the 2019 third quarter, the company turned four additional Niobrara wells to sales during the 2019 fourth quarter, with outstanding results. To date, four of the five wells have averaged peak initial 24-hour production rates of over 2,000 boe per day, including approximately 1,200 bbls of oil.

Marcellus

In the Marcellus Shale in northeast Pennsylvania, capital efficiencies and wider spacing continue to deliver strong results, including a daily gross field production record of 2.67 billion cubic feet of gas per day set in November 2019 and a net production record for the 2019 fourth quarter of approximately 975 million cubic feet (mmcf) of gas per day. Additionally, the company initiated a field compression program in 2019, installing over 70 pad compressors resulting in a capital efficient average gross base production uplift of approximately 60 mmcf of gas per day since May. In 2020, the company plans to expand this program to match operating conditions of offset operators with over 30 pad compressors currently planned to be installed.