Exploration & Production | Capital Markets | Capital Expenditure | Private Equity Activity

Chesapeake Cuts Down 2014 CapEx by 20%; Plans Diverse Shale Ops

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 Chesapeake Energy Corporation has reported details of its 2014 Outlook and capital program.

Highlights:

• Expected total capital expenditures to range from $5.2 – $5.6 billion
• Projected production growth of 8 – 10%, adjusted for asset sales
• Estimated per-unit production and G&A expenses to decline 10% and 25%, respectively, year over year
• Targeted long-term production growth per debt-adjusted share of 5 – 9% annually

Doug Lawler, Chesapeake’s Chief Executive Officer, said, "2013 was a transformational year for the company and its stakeholders. The Chesapeake team worked diligently on several major initiatives designed to ensure that our processes and practices maximize returns from our exceptional asset base. We have established specific strategic goals and metrics that we believe will drive us toward top-quartile operational, financial and shareholder return performance among our peers. Disciplined capital allocation, budget and cost leadership programs are now in place, and I am very excited about Chesapeake’s opportunity to become a differential investment and industry partner of choice in 2014 and beyond."

Capital Program and Production Outlook

Chesapeake is budgeting total capital expenditures in the range of $5.2 – $5.6 billion in 2014, which represents a 20% reduction from the midpoint of Chesapeake’s 2013 capital expenditure Outlook range. After adjusting for 2013 asset sales, the company expects to generate 8 – 10% year-over-year production growth in 2014, consisting of 8 – 12% oil production growth, 44 – 49% natural gas liquids production growth and 4 – 6% natural gas production growth. On an absolute basis, Chesapeake is targeting 2014 production growth of 2 – 4%, which implies an average daily production rate of 680 – 695 thousand barrels of oil equivalent (mboe).

Chesapeake plans to spud approximately 1,100 gross operated wells in 2014, which is relatively unchanged from 2013 activity levels. The company plans to connect approximately 1,300 gross operated wells to sales in 2014, or approximately 115 fewer wells than in 2013. Lawler commented, "Our improving capital efficiency has made it possible for us to forecast similar adjusted production growth in 2014 compared to 2013, despite a substantial reduction in capital expenditures and approximately 8% fewer operated wells expected to be connected to sales."

Cost Overview

As a result of ongoing cost control initiatives, Chesapeake anticipates lower per-unit production and general and administrative (G&A) expenses in 2014. Production expenses are expected to range from $4.25 – $4.75 per barrel of oil equivalent (boe), down approximately 10% year over year from the midpoint of Chesapeake’s 2013 production expense Outlook range. G&A expenses (excluding restructuring and other termination benefits) are estimated to be $1.35 – $1.60 per boe, down approximately 25% year over year from the midpoint of Chesapeake’s 2013 G&A expense Outlook range.

Lawler concluded, "We are encouraged by the progress we have made during the second half of 2013, and I look forward to our efforts yielding strong financial results in 2014. While our guidance today does not reflect the impact of potential divestitures, we continue to pursue opportunities to high-grade our portfolio through asset sales. We believe these transactions will be value accretive and enable us to further reduce financial complexity and improve overall leverage. Over the last eight months, we have conducted an extensive review of Chesapeake’s portfolio. Due to the size and quality of the asset base, I am confident that by remaining focused on our strategic priorities we can deliver long-term production growth per debt-adjusted share of 5 – 9% annually, while maintaining a disciplined capital spending profile."

A complete summary of the company’s guidance for 2014 is provided in the Outlook dated February 6, 2014, which is attached to this release as Schedule "A" beginning on Page 4.

Key Play Information

The following table details December 2013 average production rates, year-end drilled well inventory, estimated 2014 exploration and production (E&P) capital expenditures and 2014 estimated operated rig count by play: