Chesapeake Cuts Debt by $1 billion but is Still $8.7 billion in Trouble

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The headline of the quarterly earnings report released Thursday by Chesapeake Energy focused on how the company’s total debt reduction is more than $1 billion year to date. But buried in the details of the report is the fact that the Oklahoma City company remains $8.7 million in debt and suffered second quarter losses of $1.792 billion or $2.48 per share for common stockholders.

Revenues for the quarter declined by 54% compared to a year ago “primarily due to a decrease in the average realized commodity prices received for its production, unrealized losses from oil and natural gas derivatives and a decrease in the average realized commodity prices received for its marketing operations.”

The company reported that as of June 30, Chesapeake’s deb t principal balance was approximately $8.7 billion including approximately $100 million of borrowings outstanding on the company’s $4.0 billion revolving credit facility, compared to the $9.7 billion as of December 31, 2015 and $11.7 billion as of June 30, 2015.

“In 2016, we have made substantial progress on many fronts, including the reduction of more than $1 billion of debt,” explained Doug Lawler, Chesapeake’s Chief Executive Officer. “Financial discipline remains our top priority and we continued to work toward additional solutions to improve our liquidity, reduce our midstream commitments and enhance our margins.”

But he also revealed that looking into 2017, “we believe our oil production will be relatively flat–as compared to 2016. while total production volumes are projected to be down approximately 5% compared to 2016 levels.”

The company said that through the 2016 second quarter, its asset divestiture activities totaled $964 million in net proceeds. It will continue to focus on select asset divestitures and “is currently planning to sell additional properties by year-end 2016, including a portion of its Haynesville Shale properties.” The company raised its 2016 guidance for total gross asset divestitures either closed or under sales agreements to now be more than $2 billion compared to the previous range of $1.2 to $1.7 billion.

The company indicated it has10 drilling rigs in operating areas including three in the Eagle Ford Shale, three in the Haynesville Shale, three in the Mid-Continent area and one rig in the Utica Shale. Chesapeake says it is planning to operate the ten rigs throughout the remainder of the year and has plans of drilling more than 100 additional wells.

 

Listen to CEO Doug Lawler’s opening comments at the Thursday morning conference call.