Chesapeake Energy reports 2013 finances; still waiting on infrastructure in Utica shale

OKLAHOMA CITY, Okla. — Chesapeake Energy Corporation reports adjusted net income per fully diluted share increased to $1.50 in the 2013 full year, from 61 cents the previous year.

This increase is primarily the result of substantially higher year-over-year oil production, higher realized oil, natural gas and natural gas liquids prices, and lower per unit production and general and administrative expenses.

Average daily production, adjusted for asset sales, increased 11 percent year over year, and combined 2013 per unit production and G&A expenses declined 15 percent year over year 2013 year-end.

The numbers came Feb. 26, as the company announced its financial and operational results for 2013.

“In 2014, we plan to reduce drilling and completion costs, before drilling carry credits, by nearly $900 million, while still generating comparable production growth year over year” said Doug Lawler, Chesapeake’s chief executive officer.

For the 2013 full year Chesapeake reported net income available to common stockholders of $474 million, or 73 cents per fully diluted share.

Operating cash flow, which is cash flow provided by operating activities before changes in assets and liabilities, was $4.956 billion in 2013, an increase of 26 percent year over year.

Oil production

Chesapeake’s daily production for the 2013 full year averaged approximately 669,600 barrels of oil equivalent (boe), an increase of 3 percent compared to the 2012 full year.

The company’s 2013 average daily production consisted of approximately 112,600 barrels (bbls) of oil, 57,200 bbls of natural gas liquids and 3.0 billion cubic feet (bcf) of natural gas.

In 2013 average daily oil production increased 32 percent year over year, average daily natural gas liquids production increased 19 percent year over year and natural gas production decreased 3 percent year over year.

Liquids accounted for 25 percent of total production, up from 20 percent during the 2012 full year.

Adjusted for asset sales, the company’s total 2013 production increased approximately 11 percent year over year.

Cost overview

During the 2013 full year, Chesapeake operated an average of 71 rigs and invested approximately $5.5 billion in drilling and completion activities. This level of capital spending represented a decrease of 38 percent compared to the 2012 full year.

Chesapeake spud a total of 1,097 gross wells and completed 1,359 gross wells during the 2013 full year, compared to 1,653 gross wells spud and 1,562 gross wells completed during the 2012 full year.

During 2014 Chesapeake plans to operate 55-65 rigs.

Utica Shale

Utica net production in eastern Ohio, Pennsylvania, West Virginia, averaged approximately 189 mmcfe per day during the 2013 fourth quarter, an increase of 309 percent year over year and 15 percent sequentially from the 2013 third quarter.

During the 2013 fourth quarter Chesapeake operated an average of nine rigs and connected 49 gross wells to sales in the Utica, compared to 11 average operated rigs and 63 gross wells connected to sales during the 2013 third quarter.

The average peak daily production rate of the 49 wells that commenced first production in the Utica during the 2013 fourth quarter was approximately 7.7 mmcfe per day.

As of December 31, 2013, Chesapeake had drilled a total of 425 wells in the Utica, which included 230 producing wells and 195 wells awaiting pipeline connection or in various stages of completion.

Hampered by infrastructure

Midstream processing infrastructure build-out delays and operational issues impacted Chesapeake’s growth ramp in the Utica during the second half of 2013 and will continue to have an impact to a lesser degree in the first quarter of 2014.

As a result of the infrastructure and operational issues, the vast majority of Chesapeake’s wells that are connected to sales lines are on restricted choke and have not been producing at full capacity.

Service resumed at the Natrium processing plant in January 2014, and assuming the mid-year addition of the third phase of gas processing at the Kensington facility, Chesapeake anticipates that it will achieve net production of 700 mmcfe per day in the Utica by year-end 2014.

Northern Marcellus Shale

Chesapeake’s production from Pennsylvania’s northern Marcellus continued to grow during the 2013 fourth quarter.

Average daily net production in this play was approximately 880 mmcfe per day (2,100 gross operated mmcfe per day), an increase of 36 percent year over year and 7 percent sequentially.

All of the company’s production in the northern Marcellus consists of natural gas.

As of Dec. 31, 2013, Chesapeake had 112 wells awaiting pipeline connection or in various stages of completion in the northern Marcellus.

Chesapeake’s wells in the northern Marcellus continue to exceed expectations, and at current rig levels and projected natural gas prices the company expects this region to contribute substantial positive cash flow in 2014.

In the three-year period ended Dec. 31, 2013, net daily production from the northern Marcellus grew 56 percent on a compounded annual basis.

Southern Marcellus Shale

During the 2013 fourth quarter, Chesapeake’s average daily net production in the southern wet-gas portion of the Marcellus (Pennsylvania, West Virginia) was approximately 285 mmcfe per day, an increase of 82 percent year over year.

Approximately 12 percent of the company’s southern Marcellus production was oil, 18 percent was NGL and 70 percent was natural gas.

As of Dec. 31, 2013, Chesapeake had 47 wells awaiting pipeline connection or in various stages of completion in the southern Marcellus.