2016 q3 earnings
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3q16 earningsNovember 3, 2016
Forward-looking statementsThis presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are statements other than statements of historical fact. They include statements that give our current expectations or forecasts of future events, production and well connection forecasts, estimates of operating costs, anticipated capital and operational efficiencies, planned development drilling and expected drilling cost reductions, general and administrative expenses, capital expenditures, the timing of anticipated noncore asset sales and proceeds to be received therefrom, projected cash flow and liquidity, our ability to enhance our cash flow and financial flexibility, plans and objectives for future operations (including our ability to optimize base production and execute gas gathering agreements), the ability of our employees, portfolio strength and operational leadership to create long-term value, and the assumptions on which such statements are based. Although we believe the expectations and forecasts reflected in the forward-looking statements are reasonable, we can give no assurance they will prove to have been correct. They can be affected by inaccurate or changed assumptions or by known or unknown risks and uncertainties.Factors that could cause actual results to differ materially from expected results include those described under Risk Factors in Item 1A of our annual report on Form 10-K and any updates to those factors set forth in Chesapeake's subsequent quarterly reports on Form 10-Q or current reports on Form 8-K (available at http://www.chk.com/investors/sec-filings). These risk factors include the volatility of oil, natural gas and NGL prices; the limitations our level of indebtedness may have on our financial flexibility; our inability to access the capital markets on favorable terms or at all; the availability of cash flows from operations and other funds to finance reserve replacement costs or satisfy our debt obligations; a further downgrade in our credit rating requiring us to post more collateral under certain commercial arrangements; write-downs of our oil and natural gas asset carrying values due low commodity prices; our ability to replace reserves and sustain production; uncertainties inherent in estimating quantities of oil, natural gas and NGL reserves and projecting future rates of production and the amount and timing of development expenditures; our ability to generate profits or achieve targeted results in drilling and well operations; leasehold terms expiring before production can be established; commodity derivative activities resulting in lower prices realized on oil, natural gas and NGL sales; the need to secure derivative liabilities and the inability of counterparties to satisfy their obligations; adverse developments or losses from pending or future litigation and regulatory proceedings, including royalty claims; charges incurred in response to market conditions and in connection with our ongoing actions to reduce financial leverage and complexity; drilling and operating risks and resulting liabilities; effects of environmental protection laws and regulation on our business; legislative and regulatory initiatives further regulating hydraulic fracturing; our need to secure adequate supplies of water for our drilling operations and to dispose of or recycle the water used; impacts of potential legislative and regulatory actions addressing climate change; federal and state tax proposals affecting our industry; potential OTC derivatives regulation limiting our ability to hedge against commodity price fluctuations; competition in the oil and gas exploration and production industry; a deterioration in general economic, business or industry conditions; negative public perceptions of our industry; limited control over properties we do not operate; pipeline and gathering system capacity constraints and transportation interruptions; terrorist activities and cyber-attacks adversely impacting our operations; potential challenges of our spin-off of Seventy Seven Energy Inc. (SSE) in connection with SSE's recently completed bankruptcy under Chapter 11 of the U.S. Bankruptcy Code; an interruption in operations at our headquarters due to a catastrophic event; the continuation of suspended dividend payments on our common stock and preferred stock; certain anti-takeover provisions that affect shareholder rights; and our inability to increase or maintain our liquidity through debt repurchases, capital exchanges, asset sales, joint ventures, farmouts or other means.In addition, disclosures concerning the estimated contribution of derivative contracts to our future results of operations are based upon market information as of a specific date. These market prices are subject to significant volatility. Our production forecasts are also dependent upon many assumptions, including estimates of production decline rates from existing wells and the outcome of future drilling activity. Expected asset sales may not be completed in the time frame anticipated or at all. We caution you not to place undue reliance on our forward-looking statements, which speak only as of the date of this presentation, and we undertake no obligation to update any of the information provided in this release or the accompanying Outlook, except as required by applicable law.
Chesapeakes focus in 2016delivering on our plan3Q'16 Earnings2016 Plan2016 Progress to Date3(1) Includes general and administrative expenses, including stock based compensation. (2) Includes production expenses and general and administrative expenses, including stock based compensation.Maximize LiquidityReduce capital budget by >50%10% reduction in LOE/boe15% reduction in G&A/boe (1)Raised 2016 production guidance and reiterated capex guidanceReduced cash costs by 20% third quarter YOY (2)Optimize PortfolioClose on $700mm in signed asset divestitures$500 $1,000mm in additional asset divestituresFund short-cycle cash-generating projects$1.3 billion in gross proceeds from divestitures YTDExpect more than $2.0 billion in gross proceedsAcquired ~70,000 net acres in the HaynesvilleIncrease EBITDAImprove gathering and transportation agreements2016 capital program focusing on TILSReduce base decline rate by 10%~$715mm reduction in GP&T expenses in 2016 and 2017 due to Barnett divest$200 $300mm increase in annual operating income from 2016 2019 due to Barnett divest36% reduction in Mid-Continent gathering costs; PRB restructuring to take effect in 2017Debt Management/EliminationProactive liability managementOpen market repurchases of debtFocus on 2017 and 2018 maturity managementReduced 2017 maturing/puttable debt by ~$1.6 billion since 9/30/15~$1.4 billion in incremental liquidity since 9/30/2015 due to proactive liability management
3Q16 financial and Operational results(1) Includes stock-based compensation(2) Adjusted for asset sales(3) Oil and NGLs collectively referred to as liquids43Q'16 Earnings
LIQUIDS MIX (3)24%of total production
2% YOY (2)
ADJ. PRODUCTION638 mboe/d
PROD. and G&A EXP.
ADJ. OIL PRODUCTION
16% YOY (2)
86 mbo/d20% YOY
Returning to growthsignificant oil growth will drive margin expansion(1) Production forecast subject to final capital allocation decisions for 2017 and 2018 and market conditions3Q'16 Earnings5~10% oil production growth projected from 4Q16 to 4Q17~20% oil production growth projected from 4Q17 to 4Q18
Adjusted Production reconciliationcumulative impact of multiple Sales transactions in 20163Q'16 Earnings6Production with Divestiture Adjustments (1)Mid-Continent divestitures closePartial quarter impact of Barnett Shale exitFull impact of Barnett and planned Devonian and Haynesville divestitures(mboe/d)(2)(2)(1) 3Q16 divestiture production impact of 8,200 bo/d, 102mmcf/d and 5,900 bbl/d of NGL. 4Q16 projected divestiture production impact of 8,300 bo/d, 310 mmcf/d and 7,200 bbl/d of NGL. 1Q17 projected divestiture production impact of 8,500 bo/d, 495 mmcf/d and 8,100 bbl/d of NGL. (2) Projected total production volumes represent the mid-point of guidance provided on page 5.
Hedging position3Q'16 Earnings7(1) Using midpoints of total production from 11/3/2016 Outlook52%Swaps $49.68/bbl63%60%Swaps3%Collars$3.00/$3.48/mcfNYMEX$3.07/mcfNYMEX79%72%Swaps7%Collars$3.00/$3.48/mcfNYMEX$2.85/mcfNYMEX67%Swaps $46.84/bbl18%Ethane Swaps $0.17/galPropane Swaps $0.46/gal
Continue to deliver in 2016~$1.4 billion incremental liquidity generated through proactive liability management (1)
3Q'16 Earnings(1) Since 9/30/2015, as of 11/3/16.8~$1.3 billion in gross proceeds from asset divestitures YTD; Expect more than $2.0 billion in gross proceedsBarnett divest is expected to increase annual operating income by $200 $300mm per year from 2016 2019; Reduced cash costs by 20% in third quarter YOYReduced 2017 maturing/puttable debt by ~$1.6 billion (1)
Reconciliation of Adjusted Earnings per share(a) Weighted average common and common equivalent shares outstanding do not include 113 million shares that were considered antidilutive for calculating earnings per share in accordance with GAAP.(b) Our effective tax rate in the three months ended September30, 2016 was 0%; thus, there is no tax effect on the reconciling adjustments. (c) Adjusted net income and adjusted earnings per common share are not measures of financial performance under accounting principles generally accepted in the United States (GAAP), and should not be considered as an alternative to net income avai