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Chesapeake Energy 4Q and Full Year 2011 Earnings Conference Call
Chesapeake Energy 4Q and Full Year 2011 Earnings Conference Call
Chesapeake Energy 4Q and Full Year 2011 Earnings Conference Call
Key Accomplishments
Named by Fortune Magazine as the 18th best company to work for in the U.S., including the 5th best in the U.S. among companies with more than 10,000 employees #1 among all companies in the oil and gas industry 5th consecutive year on the list having moved up from #61 to #18 in 5 years
On course for >70% or ~63,000 bbls per day increase in liquids production in 2012 Poised to become Top 5 producer of liquids in the U.S. by 2015, with an average of ~250,000 barrels of daily production
Helped re-capitalize Frac Tech Services, which is the fourth-largest pressure pumper in the U.S.
Leading the industry in the effort to increase demand for natural gas Helped lead $400 million of investments in Clean Energy (NYSE: CLNE) to build Americas Natural Gas Super Highway In addition, CHK benefited entire industry by curtailing ~15% of our gross operated gas production, or ~1 bcf per day
#1 in the Utica #2 in the Eagle Ford #1 in the Cleveland tight sand #1 in the Tonkawa tight sand #1 in the core area of the Granite Wash #1 in the Mississippi Lime #1 in the Powder River Basin Niobrara Shale
Even if Chesapeake were to sell 100% of its Permian Basin assets Chesapeake would still retain a #1 or #2 positions in 11 of the nations best natural gas and liquids-rich plays
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Entering 2012 with strong momentum to continue making the shift from a 90% natural gas producer in 2009 to a much more balanced producer in the years ahead Poised to generate $10-$12 billion of proceeds from asset monetizations in 2012, when combined with operating cash flow, will easily fund the gap between our operating cash flow and our capital expenditure spending By 2014, Chesapeake is confident it will have reached breakeven between its operating cash flow and capital expenditures even if natural gas prices remain at low levels, which given the rapidly changing supply and demand fundamentals emerging in real time before us today, is very unlikely
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Nick Dell'Osso
Executive Vice President and Chief Financial Officer
2011 Recap
$2.80 / share in EPS driven by production growth and cost control LOE $0.88 per mcfe a decrease of $0.02 per mcfe from 2010 Countrys largest drilling program and vertically integrated model Significant progress towards completing 25/25 plan Poised to take advantage of rebounding gas prices when they occur
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2012 Strategy
Executing on two primary goals
Increasing oil and liquids production Decreasing financial leverage
Summary of cash inflows and outflows should highlight significant headroom in 2012 and inclusive of carryover poised to continue in 2013 Offer variety of return profiles among strong asset portfolio
Proved reserves Natural gas and oil production Large acreage positions and Vertically integrated midstream and service company investments
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2012
$6,760 210 480 (340) (1,240) (600) 5,270 (100) 5,170 (1,950) (360) (1,120) (190) $1,550 $2.05 3.7x 6.5x 12.2x
2013
$9,060 (30) 630 (450) (1,420) (700) 7,090 (110) 6,980 (2,390) (490) (1,600) (220) $2,280 $3.00 2.7x 4.8x 8.3x
Marketing and other Production taxes 5% LOE G&A(3) Ebitda Interest expense incl. capitalized interest
Continued liquids production growth Increase in operating cash flow by almost 60% in 2013 vs. 2012 assuming only a $1 increase in gas prices Flat price deck operating cash flow expected to grow 35% 2012-13 (shown
in green)
(4)
Depreciation of other assets Income taxes (39% rate) Net income attributable to noncontrolling interest Net income Net income to common per fully diluted shares MEV/operating cash flow (5 ) EV/ebitda (6 ) PE ratio (7 )
As of 2/21/12 Outlook (1) Before effects of unrealized hedging gain or loss (2) Includes the non-cash effect of lifted hedges and financing derivatives (3) Includes charges related to stock based compensation (4) Before changes in assets and liabilities (5) MEV (Market Equity Value) = $19.2 billion ($25.00/share x 766 mm fully diluted shares as of 12/31/11) (6) EV (Enterprise Value) = $34.0 billion (MEV plus $10.7 billion in net long-term debt plus $4.1 billion working capital deficit as of 12/31/11), pro forma for Senior Notes issued 2/13/2012 (7) Assuming a common stock price of $25.00/share
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Steve Dixon
Chief Operating Officer and Executive Vice President
Continued best-in-class performance Produced nearly 1.2 tcfe on a net basis Increased gross operated production to 6.4 bcfe per day 18.8 tcfe of proved reserves based on SEC pricing after sales of 2.8 tcfe of proved reserves Added 5.6 tcfe at a drilling and completion cost of only $1.08 per mcfe Drilled 1,680 gross wells and connected more than 1,400 wells Participated in an additional 1,250 wells drilled by others and those operators turned 1,050 wells
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Gross operated production of 45,500 boe per day and 22,600 boe per day on a net basis Production mix:
~50% crude, ~20% NGLs and ~30% natural gas
108 wells that tested with peak oil rates of 500 barrels of oil or more Producing 178 wells to date and have a backlog of almost 200 additional wells Finished 2011 with 7 frac crews and will be up to 11 by mid-March of 2012 and 13 by year-end 2012 Doubled drilling efficiency since January 2010 Added 350 miles of pipelines and regional rail loading terminals during the year Expect to gain greater transportation capacity in 2012
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Mississippi Lime
Chesapeake discovered play with industrys first horizontal well drilled in 2007 and is today dominated by Chesapeake and our friends at SandRidge Net production averaged >10,500 boe per day in the fourth quarter, up 31% compared to last quarter and up 141% compared to this period last year
Participated in 33 wells that tested with peak oil rates of 500 barrels of oil or more
Should bring in JV partner this Summer
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Production mix:
50% crude, 15% NGLs and 35% natural gas
Have participated in 70 wells that tested with peak oil rates of 500 barrels of oil or more Currently operating 20 rigs between the two plays and expect to maintain that level throughout 2012
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Permian Basin
Chesapeake is considering a JV or outright sale Most prolific basin in the U.S. and is garnering significant capital at current oil strip prices Our 1.5 mm net acre Permian acreage position is focused in key development plays the Avalon, Bone Spring, Wolfcamp and Wolfberry 4Q net production was ~33,000 boe/d
Increased 22% compared to the 4Q of last year
Tested 21 wells with peak oil rates of 500 barrels of oil or more and the average peak rate of these wells was over 1,000 barrels of oil a day
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Utica Shale
Currently have 6 rigs working in the wet gas window, 1 rig working in the dry gas window and 1 in the oil window
Well be ramping up to 20 rigs by year-end 2012
Drilled 42 wells in the play, with 7 on production and 35 waiting on completion or pipeline connection
Two recent completions (Burgett and Shaw), which produced at peak rates an average of >700 barrels and 3.0 mmcf/d
Already starting to see drilling efficiencies in the play spud to rig release of 16 days Will install 200 miles of pipelines in the play in 2012
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Looking Forward
Operating 161 rigs and have accomplished approximately 90% of our planned transition to liquids-rich plays Expect that our operated rig count will stay relatively level for the year and average approximately 161 rigs for in 2012 including:
33 in the Eagle Ford Shale
Expect to spend $7 to $7.5 billion on proved and unproved drilling and completion activities in 2012, approximately 85% of which will be directed to our liquids-rich plays
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2011 was Chesapeakes safest year ever in conducting its operations 2011 Total Recordable Incident Rate was an impressive 0.53 OSHA recordable incidents have continued to decrease Since implementing the SAFE program in 2010 COI has improved our safety performance by 34% while increasing employee count Committed to making 2012 also the safest year in the history of the company In 2011, CHK formally adopted a set of environmental principles for employees, contractors, suppliers and vendors Also in 2011, CHK joined nation-wide registry to disclose additives in the companys hydraulic fracturing operations www.fracfocus.org
Posted >1,300 wells to date: >11% of all wells posted; more than any other operator
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