Chesapeake Reports Financial, Operational Results for 2010

Chesapeake announced financial and operational results for the 2010 fourth quarter and full year. For the 2010 fourth quarter, Chesapeake reported a net income to common stockholders of $180 million ($0.28 per fully diluted common share) and operating cash flow (defined as cash flow from operating activities before changes in assets and liabilities) of $1.186 billion on revenue of $1.975 billion and production of 269 billion cubic feet of natural gas equivalent (bcfe). For the 2010 full year, Chesapeake reported net income to common stockholders of $1.663 billion ($2.51 per fully diluted common share) and operating cash flow of $4.548 billion on revenue of $9.366 billion and production of 1.035 trillion cubic feet of natural gas equivalent (tcfe).

The company's 2010 fourth quarter and full year results include realized natural gas and oil hedging gains of $571 million and $2.056 billion, respectively. The results also include various items that are typically not included in published estimates of the company's financial results by certain securities analysts. Excluding the items detailed below, for the 2010 fourth quarter, Chesapeake reported adjusted net income to common stockholders of $478 million ($0.70 per fully diluted common share) and adjusted ebitda of $1.274 billion and, for the 2010 full year, Chesapeake reported adjusted net income to common stockholders of $1.971 billion ($2.95 per fully diluted common share) and adjusted ebitda of $5.083 billion. The excluded items and their effects on the 2010 fourth quarter and full year reported results are detailed as follows:

  • a net unrealized after-tax mark-to-market loss of $392 million for the 2010 fourth quarter and $364 million for the full year resulting from the company's natural gas, oil and interest rate hedging programs;
  • a net after-tax gain of $95 million for the 2010 fourth quarter and $84 million for the full year related to the sale of certain of the company's fixed assets;
  • an after-tax gain of $74 million for the full year associated with certain equity investments where the investee sold additional equity to third parties at a price in excess of the company's basis;
  • an after-tax loss of $80 million for the full year related to the redemption or exchange of certain of the company's senior notes;
  • an after-tax charge of $1 million for the 2010 fourth quarter and $22 million for the full year for the impairment of certain of the company's assets.

The various items described above do not materially affect the calculation of operating cash flow.

2010 Full Year Average Daily Production Increases 14% over 2009 Full Year Average Daily Production, Setting Record for 21st Consecutive Year

Chesapeake's daily production for the 2010 fourth quarter averaged 2.920 bcfe, a decrease of 4% from the 3.043 bcfe produced per day in the 2010 third quarter and an increase of 12% over the 2.618 bcfe of daily production in the 2009 fourth quarter. At the end of the 2010 third quarter, the company sold future production through a volumetric production payment covering a portion of its Barnett Shale assets, including approximately 350 million cubic feet of natural gas equivalent (mmcfe) per day of production in the 2010 fourth quarter. Excluding this sale, the company's 2010 fourth quarter production would have increased 7% sequentially and 25% year over year. Chesapeake's average daily production of 2.920 bcfe for the 2010 fourth quarter consisted of approximately 2.558 billion cubic feet of natural gas (bcf) (88% on a natural gas equivalent basis) and 60,457 barrels (bbls) of oil and natural gas liquids (NGLs) (12% on a natural gas equivalent basis). For the 2010 fourth quarter, the company's year over year growth rate of natural gas production was 5% and its year over year growth rate of oil and NGLs production was 103%.

The company's daily production for the 2010 full year averaged 2.836 bcfe, an increase of 14% over the 2.481 bcfe of daily production for the 2009 full year. Chesapeake's average daily production for the 2010 full year of 2.836 bcfe consisted of 2.534 bcf (89% on a natural gas equivalent basis) and 50,397 bbls (11% on a natural gas equivalent basis). The 2010 full year was Chesapeake's 21st consecutive year of sequential production growth. Chesapeake anticipates delivering a production growth rate of 25% over the next two years, net of property divestitures pursuant to its 25/25 Plan discussed on page 7 of this release.

Proved Natural Gas and Oil Reserves Increase by 2.8 Tcfe, or 20% for the 2010 Full Year to 17.1 Tcfe; Company Adds Proved Reserves of 5.1 Tcfe through the Drillbit in 2010 at a Drilling and Completion Cost of $1.07 per Mcfe

During 2010, Chesapeake continued the industry's most active drilling program, drilling 1,445 gross operated wells (938 net wells with an average working interest of 65%) and participating in another 1,586 gross wells operated by other companies (211 net wells with an average working interest of 13%). The company's drilling success rate was 98% for both company-operated and non-operated wells. During 2010, Chesapeake's drilling and completion costs include the benefit of approximately $1.151 billion of drilling and completion carries from its joint venture partners.

In addition to the PV-10 value of its proved reserves, the company also has substantial value in its undeveloped leasehold, particularly in the Haynesville, Marcellus, Barnett, Bossier and Fayetteville unconventional natural gas shale plays and the company's unconventional liquids-rich plays, particularly in the Granite Wash, Cleveland, Tonkawa and Mississippian plays of the Anadarko Basin; the Eagle Ford Shale in South Texas; the Niobrara Shale in the Powder River and Denver-Julesburg (DJ) basins; the Avalon, Bone Spring, Wolfcamp and Wolfberry plays in the Permian Basin; and various plays in the Williston Basin.

Additionally, the net book value of the company's other assets (including gathering systems, compressors, land and buildings, investments and other non-current assets) was $6.1 billion as of December 31, 2010, compared to $6.7 billion as of December 31, 2009. The decline in other assets is primarily due to the deconsolidation of the company's midstream joint venture reflecting the implementation of new accounting guidance for certain investments and the sale of the company's Springridge natural gas gathering system and related facilities to our affiliate, Chesapeake Midstream Partners, L.P.

Chesapeake's Leasehold and 3-D Seismic Inventories Total 13.3 Million Net Acres and 27.9 Million Acres, Respectively; Risked Unproved Resources in the Company's Inventory Total 103 Tcfe

Since 2000, Chesapeake has built the largest combined inventories of onshore leasehold (13.3 million net acres) and 3-D seismic (27.9 million acres) in the U.S. This position includes the largest inventory of U.S. natural gas shale play leasehold (2.5 million net acres) as well as the largest combined leasehold position in two of the three largest new unconventional liquids-rich plays in the U.S. – the Eagle Ford Shale and the Niobrara Shale.

On its total leasehold inventory, pro forma for the company's recently announced sale of its Fayetteville Shale assets and the Powder River and DJ Basin cooperation agreement with CNOOC International Limited (CNOOC), a wholly owned subsidiary of CNOOC, Chesapeake has identified an estimated 15.2 tcfe of proved reserves (using volume estimates based on the 10-year average NYMEX strip prices at December 31, 2010), 103 tcfe of risked unproved resources and 269 tcfe of unrisked unproved resources. Pro forma for the Fayetteville Shale sale, the company is currently using 149 operated drilling rigs to further develop its inventory of approximately 37,800 net drillsites. Of Chesapeake's 149 operated rigs, 85 are drilling wells primarily focused on unconventional natural gas plays (including 50 operated rigs benefiting from drilling carries) and 61 are drilling wells primarily focused on unconventional liquids-rich plays (including 23 operated rigs benefiting from drilling carries) and 3 operated rigs are drilling in other plays. In addition, 143 of the company's 149 operated rigs are drilling horizontal wells.

In recognition of the value gap between oil and natural gas prices, during the past two years Chesapeake has directed a significant portion of its technological and leasehold acquisition expertise to identify, secure and commercialize new unconventional liquids-rich plays. To date, Chesapeake has built leasehold positions and established production in multiple unconventional liquids-rich plays on approximately 4.1 million net leasehold acres with 5.2 billion barrels of oil equivalent (bboe) (30.9 tcfe) of risked unproved resources and 15.4 bboe (92.4 tcfe) of unrisked unproved resources. As a result of its success to date, Chesapeake expects to increase its oil and natural gas liquids production through its drilling activities to more than 150,000 bbls per day, or 20%-25% of total production, by year-end 2012 and to more than 250,000 bbls per day, or 30%-35% of total production, through organic growth by year-end 2015.

A complete reconciliation of proved reserves and reserve replacement ratios based on these two alternative pricing methods, along with total costs, is presented on pages 12 and 13 of this release. Also, a reconciliation of PV-10 to the standardized measure is presented on page 14 of this release.

In addition to the PV-10 value of its proved reserves, the company also has substantial value in its undeveloped leasehold, particularly in the Haynesville, Marcellus, Barnett, Bossier and Fayetteville unconventional natural gas shale plays and the company's unconventional liquids-rich plays, particularly in the Granite Wash, Cleveland, Tonkawa and Mississippian plays of the Anadarko Basin; the Eagle Ford Shale in South Texas; the Niobrara Shale in the Powder River and Denver-Julesburg (DJ) basins; the Avalon, Bone Spring, Wolfcamp and Wolfberry plays in the Permian Basin; and various plays in the Williston Basin.

Additionally, the net book value of the company's other assets (including gathering systems, compressors, land and buildings, investments and other non-current assets) was $6.1 billion as of December 31, 2010, compared to $6.7 billion as of December 31, 2009. The decline in other assets is primarily due to the deconsolidation of the company's midstream joint venture reflecting the implementation of new accounting guidance for certain investments and the sale of the company's Springridge natural gas gathering system and related facilities to our affiliate, Chesapeake Midstream Partners, L.P.

Chesapeake's Leasehold and 3-D Seismic Inventories Total 13.3 Million Net Acres and 27.9 Million Acres, Respectively; Risked Unproved Resources in the Company's Inventory Total 103 Tcfe

Since 2000, Chesapeake has built the largest combined inventories of onshore leasehold (13.3 million net acres) and 3-D seismic (27.9 million acres) in the U.S. This position includes the largest inventory of U.S. natural gas shale play leasehold (2.5 million net acres) as well as the largest combined leasehold position in two of the three largest new unconventional liquids-rich plays in the U.S. – the Eagle Ford Shale and the Niobrara Shale.

On its total leasehold inventory, pro forma for the company's recently announced sale of its Fayetteville Shale assets and the Powder River and DJ Basin cooperation agreement with CNOOC International Limited (CNOOC), a wholly owned subsidiary of CNOOC Limited (NYSE:CEO - News), Chesapeake has identified an estimated 15.2 tcfe of proved reserves (using volume estimates based on the 10-year average NYMEX strip prices at December 31, 2010), 103 tcfe of risked unproved resources and 269 tcfe of unrisked unproved resources. Pro forma for the Fayetteville Shale sale, the company is currently using 149 operated drilling rigs to further develop its inventory of approximately 37,800 net drillsites. Of Chesapeake's 149 operated rigs, 85 are drilling wells primarily focused on unconventional natural gas plays (including 50 operated rigs benefiting from drilling carries) and 61 are drilling wells primarily focused on unconventional liquids-rich plays (including 23 operated rigs benefiting from drilling carries) and 3 operated rigs are drilling in other plays. In addition, 143 of the company's 149 operated rigs are drilling horizontal wells.

In recognition of the value gap between oil and natural gas prices, during the past two years Chesapeake has directed a significant portion of its technological and leasehold acquisition expertise to identify, secure and commercialize new unconventional liquids-rich plays. To date, Chesapeake has built leasehold positions and established production in multiple unconventional liquids-rich plays on approximately 4.1 million net leasehold acres with 5.2 billion barrels of oil equivalent (bboe) (30.9 tcfe) of risked unproved resources and 15.4 bboe (92.4 tcfe) of unrisked unproved resources. As a result of its success to date, Chesapeake expects to increase its oil and natural gas liquids production through its drilling activities to more than 150,000 bbls per day, or 20%-25% of total production, by year-end 2012 and to more than 250,000 bbls per day, or 30%-35% of total production, through organic growth by year-end 2015.

Company Provides Update on 25/25 Plan

On January 6, 2011, Chesapeake announced its 25/25 Plan, which outlined the company's plan to reduce its long-term debt by 25% during 2011-12 while also growing net natural gas and oil production by 25% during these two years. The company expects to achieve the reduction in debt primarily with proceeds from asset sales and from substantially reduced leasehold spending during this period.

Two recently announced transactions reflect the company's substantial progress already made in implementing its 25/25 Plan. On February 11, 2011, the company closed its Niobrara Shale cooperation agreement through which CNOOC purchased a 33.3% undivided interest in Chesapeake's 800,000 net natural gas and oil leasehold acres in the DJ and Powder River Basins in Colorado and Wyoming for approximately $4,750 per net acre. The company received approximately $570 million in cash at closing, and CNOOC has agreed to fund 66.7% of Chesapeake's share of drilling and completion costs until an additional $697 million has been paid, which Chesapeake expects to occur by year-end 2014.

In addition, on February 21, 2011, Chesapeake announced an agreement to sell all its upstream and midstream assets in the Fayetteville Shale to BHP Billiton Petroleum, a wholly owned subsidiary of BHP Billiton, for $4.75 billion in cash before certain deductions and standard closing adjustments. The company anticipates the transaction will close in the first half of 2011.

Events  SUBSCRIBE TO OUR NEWSLETTER

Our Privacy Pledge
SUBSCRIBE


Most Popular Articles


From the Career Center
Jobs that may interest you
Project Procurement & Contracts Advisor (Subsea Equipment)
Expertise: Contracts Engineer|Purchasing|Subsea Engineering
Location: Houston, TX
 
Sr. Electronics Engineer
Expertise: Electrical Engineering|Engineering Manager
Location: Houston, TX
 
United States Midland: Account Rep, Bus Dev
Expertise: Business Development|Sales
Location: Midland, TX
 
search for more jobs

Brent Crude Oil : $55.47/BBL 0.69%
Light Crude Oil : $52.48/BBL 0.30%
Natural Gas : $3.41/MMBtu 0.29%
Updated in last 24 hours