Chesapeake lays out operational plans as it moves ahead with $4 billion merger

Leaders of Oklahoma City’s Chesapeake Energy,in a 2018 fourth quarter report indicated their company debt has been reduced from a year earlier and the oil volumes they divested in the Utica have been completely replaced by oil growth in the Powder River Basin and Eagle Ford Shale. They also intend to reduce capital expenditures and rig operations while proceeding with the merger with WildHorse Resources.

Chesapeake achieved a net production exit rate of nearly 38,500 boe a day in December. Forty-seven percent was oil and 60 percent was total liquids. The company anticipates its volumes to accelerate in 2019, resulting in annual net production from the basin to more than double compared to 2018.

Chesapeake operates five rigs in the Powder River Basin and all are drilling in the Turner formation.

But the company’s highest margins are seen in the Eagle Ford Sale in South Texas. Eagle Ford net production averaged nearly 105,000 boe a day and nearly 58 percent of it was oil in the 2018 fourth quarter. Chesapeake has four rigs operating in the Eagle Ford.

The company continues natural gas drilling operations in the Marcellus Shale in Pennsylvania where there is what the firm described as “significant free cash flow” due to higher realized in-basin gas prices. Two new Lower Marcellus records were set in northern Sullivan County in the fourth quarter of 2018.

The JOEGUSWA 4HC well had a lateral length of 13,803 feet and set a 24-hour initial production record of 6265 million cubic feet of gas a day with a 2,600 psi flowing pressure. The JOEGUSWA 5hHC well had a lateral length of 9,808 feet andd set a 24-hour initial production record of 73.4 mmcf a day with a 3,000 psi flowing pressure.

The company also boasted of lower debt compared to a year earlier. Doug Lawler, Chesapeake’s President and Chief Executive Officer explained, “Chesapeake continues to advance our strategic priorities of improving margins, reducing debt and achieving sustainable cash flow neutrality.”

He said the 2018 asset divestitures generated more than $2 billion in net proceeds, resulting in the retirement of the firm’s term loan and senior secured second lien debt. Total debt was cut by nearly $1.8 billion from year-end 2017.

“Importantly, the divested daily oil volumes associated with the Utica sale, which represented 10% of our third quarter oil production, were replaced in the last two months of the year through our legacy South Texas and emerging Powder River Basin oil engines,” said Lawler.

With a cut in its debt,  Chesapeake’s pushing forward with the $4 billion merger with WildHorse Resources. As a result, Chesapeake is also intending to reduce 2019 capital expenditures by lowering the rig count nearly 20 percent, resulting in an average of 14 rigs compared to the current 18 rigs.

 

“We look forward to consummating the merger with WildHorse Resources and further strengthening our portfolio and competitiveness with another strong oil growth asset,” added Lawler. We plan to provide detailed capital guidance for the combined company later in the 2019 first quarter, but at present we anticipate operating four rigs on the WildHorse acreage in 2019.”

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