4Q’15 EARNINGS
February 24, 2016
FORWARD-LOOKING STATEMENTS
•
This 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, planned development drilling and expected
drilling cost reductions, capital expenditures, expected efficiency gains, our ability to improve margins, reduce operating and G&A expenses, optimize base
production, the timing of anticipated noncore asset sales and proceeds to be received therefrom, projected cash flow and liquidity, business strategy and other
opportunities, plans and objectives for future operations (including restructuring of midstream gathering agreements), 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; write-downs of our oil and
natural gas carrying values due to declines in prices; the limitations our level of indebtedness may have on our financial flexibility; the availability of operating
cash flow and other funds to finance reserve replacement costs; 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 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; federal and state tax proposals affecting our industry;
potential OTC derivatives regulation limiting our ability to hedge against commodity price fluctuations; impacts of potential legislative and regulatory actions
addressing climate change; 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; cyber attacks adversely impacting our operations; and interruption in operations at our headquarters due to a catastrophic event.
•
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 presentation, except as required by applicable law.
4Q'15 EARNINGS
2
2015 YEAR IN REVIEW AND
EARLY 2016 ACCOMPLISHMENTS
2015
> Reduced G&A/boe by 24% year over year; $87mm reduction (1)
> Reduced LOE/boe by 10% year over year; $162mm reduction
> $2.1 billion debt principal reduction through debt repurchases and debt exchange
> Renegotiated Haynesville and Utica gathering rates
2016
> ~$700 million in asset divestitures closed or under signed PSA
• Exceeded previously disclosed 1Q’16 target of $200 – $300mm
• Line of sight on additional $500 – $1,000mm in asset divestitures in 2016
> Planned 2016 total capital expenditures of $1.3 to $1.8 billion; ~57% reduction YOY (2)
> Projected 2016 production decline of 0% to 5% adjusted for asset sales
> Transportation contracts renegotiated for a $50mm reduction in shortfall payments
> ~$4.3 billion in liquidity in cash and undrawn revolver (3)
(1)
(2)
(3)
Includes stock-based compensation.
Includes capitalized interest.
As of February 23, 2016.
4Q'15 EARNINGS
3
CHESAPEAKE’S FOCUS IN 2016
WHAT WE WILL DO
(1)
Maximize Liquidity
□
□
□
Reduce capital budget by >50%
10% reduction in LOE/boe
15% reduction in G&A/boe (1)
Optimize Portfolio
□
□
□
Close on $700mm in signed asset divestitures
$500 – $1,000mm in additional asset divestitures
Fund short-cycle cash generating projects
Increase EBITDA
□
□
□
Improve gathering and transportation agreements
2016 capital program focusing on TILS
Reduce base decline rate by 10%
Debt Management/
Elimination
□
□
□
Proactive liability management
Open market repurchases of debt
Focus on 2017 and 2018 maturity management
Includes stock-based compensation.
4Q'15 EARNINGS
4
2016 CAPITAL ALLOCATION
• 2016 program provides attractive return
on incremental capital and optimizes
commitments
2016 Capital Budget
Decreasing capital budget by ~57%
~$3.6B
$0.4B Cap Int.
$0.2B Other
(1)
• Ensures full access to revolver
$1.3 – $1.8B
$0.3B Cap Int.
$3.0B
D&C
$0.8 – 1.3B
D&C
D&C Breakout
2015
Funding short-cycle cash generating
projects to maximize EBITDA
2015
2016E
Drilling
29%
Drilling
45%
Completion
55%
$0.2B Other (1)
2016E
Drilled Uncompleted Inventory
Focusing spend on completions
to reduce inventory
480
Completion
71%
225 – 250
2015
(1)
2016E
Includes other exploration and development costs and PP&E.
4Q'15 EARNINGS
5
VAST U.S. ONSHORE ASSET PORTFOLIO
SIGNIFICANT VALUE IN DEVELOPED AND UNDEVELOPED ACREAGE
Powder River Basin
20 mboe/d net (1)
Spud: 0 / TIL: 5
Marcellus Shale
130 mboe/d net (1)
Spud: 0-5 / TIL: 20
Utica Shale (2)
148 mboe/d net (1)
Spud: 0-5 / TIL: 45-55
Mid-Continent
2016 D&C Asset Funding
94 mboe/d net (1)
Spud: 40-50 / TIL: 35-45
Barnett Shale
STACK/
Mid-Con
22%
Haynesville
32%
70 mboe/d net(1)
Spud: 0 / TIL: 5
Haynesville Shale
Eagle Ford Shale
Eagle Ford
Shale
33%
102 mboe/d net (1)
Spud: 25-35 / TIL: 50-60
Marcellus
6%
(1)
97 mboe/d net
Spud: 20-30 / TIL: 170-180
Other
1%
~8.1mm net acres in developed & undeveloped leasehold
(1)
(2)
Average daily production 4Q’15.
Includes production volumes from legacy Devonian wells in West Virginia and Kentucky (~8 mboe/d net).
4Q'15 EARNINGS
6
Utica
6%
IMPROVING AND REBALANCING MIDSTREAM
COMMITMENTS
Increase EBITDA by working with partners to rebalance fees
for the long-term profitability of all companies
• Recently executed agreements in the Haynesville, Barnett and Eagle Ford
˃ Forecasted to improve cash flow by $50mm in 2016 and $50mm in 2017 with
no additional drilling commitments
• Actively marketing unutilized portion of transportation to increase utilization
by 5 – 10%
• Negotiations underway to further optimize gathering and processing rates
˃ Considering awarding new business opportunities – NGL fractionation, processing,
oil and water gathering, condensate exports, LPG exports, undedicated formations
Reduced penalty payments by ~$50 million in 2016
4Q'15 EARNINGS
7
DEBT MANAGEMENT
• Opportunistic open market debt
repurchases resulted in attractive
principal savings
• Proactive liability management
strategies will continue to be
evaluated in 2016
$2.2 billion
Debt removed from books
in 2015 and 2016 (1)
$38 million
Annual interest payment reduction from
all liability management transactions (1)
˃ Debt exchange
˃ Tender offer
$9.5 billion
˃ Open market repurchase
Total debt below $10 billion
for first time since 2006 (1,2)
˃ Alternative financings
$41 million
Principal savings from open
market repurchases of debt
(1)
(2)
Amounts are pro-forma for settlement of 2016 open market repurchases through 2/25/16 and assume euro-notes are converted to USD at 12/31/15 exchange rate of
$1.0862 to €1.00
Calculation of interest on euro-denominated notes based on terms of cross-currency swap
4Q'15 EARNINGS
8
THE TRANSFORMATION CONTINUES
We are focused on maximizing liquidity, optimizing the portfolio through
asset sales, increasing EBITDA through contract negotiations and
proactively managing debt maturities and reduction to strengthen the
balance sheet.
2015
2Q
2016
3Q
4Q
1Q
Sale of CHK
Cleveland
Tonkawa
Haynesville
and Utica
Midstream
Contract
Renegotiations
Second Lien
Debt Exchange
Announced
$700 Million
in Asset
Divestitures
Continue
Maximizing
Liquidity,
Increasing
EBITDA and
Reducing Debt
Eliminated preferred
and ORRI obligations
Enhanced margins
and added flexibility
Reduced total debt
by ~$2.1 billion;
GAAP debt below
$10 billion for first time
since 2006
Exceeded previously
disclosed target of
$200 – $300 million
Renegotiated GP&T
rates in place;
repurchase open
market debt; targeting
additional $0.5 – $1.0
billion in asset sales
in 2016
4Q'15 EARNINGS
2Q
9
APPENDIX
4Q'15 EARNINGS
10
MATURITY PROFILE
PROACTIVE LIABILITY MANAGEMENT
Debt
Reduction (1)
$9.5 billion
Liabilities
Total debt – down from $11.7 billion
on 9/30/2015
$861
(2)
$2.2 billion
$373
Debt removed from books
in 2015 and 2016
$3,064
$674
$396
$1,829
$824
$137
$716
$878
$242
$394
$2(3)
2015
(1)
(2)
(3)
$1,104
$1,126
$876
$384
$258
2016
2017
2018
2019
2020
2021
2022
$38 million
Annual interest payment reduction from
all liability management transactions
2023
Amounts are pro-forma for settlement of 2016 open market repurchases from 1/1/15 through 2/25/16 and assume euro-notes are converted to USD at 12/31/15 exchange
rate of $1.0862 to €1.00
Recognizes earliest investor put option as maturity for the 2.5% 2037 and 2.25% 2038 Contingent Convertible Senior Notes
Reflects amount that was not put to the company in 2015; next investor put date is 2020
4Q'15 EARNINGS
11
LEVERAGE REDUCTION
PROACTIVE LIABILITY MANAGEMENT
~$9.6B
Continued focus on the balance
sheet resulted in significant leverage
reduction over the past three years.
Leverage reduction over last
three years, through 12/31/15
~$176mm
Additional reduction in long-term
bonds completed in 2016(2)
($mm)
2012
2013
2014
2015
Term Loan
Long-Term Bonds(2)
Credit Facility
$2,000
$10,647
$418
$2,000
$10,825
$405
$11,756
-
$9,706
-
$13,065
$13,230
$11,756
$9,706
VPPs
Operating & Finance Leases
Subsidiary Preferred
Corporate Preferred
$3,186
$1,255
$2,500
$1,531
$2,454
$948
$2,310
$1,531
$1,702
$1,250
$1,531
$1,289
$1,531
Total Adjusted Leverage
$21,537
$20,474
$16,239
$12,526
($287)
($837)
($4,108)
($825)
$21,250
$19,637
$12,131
$11,701
Debt Principal
Cash
Total Adjusted Net Leverage
(1)
(2)
Amount reflects settlement of 2016 open market debt repurchases through 2/25/16.
Assume euro-denominated notes are converted to USD at the relevant 12/31 exchange rate for each calendar year.
4Q'15 EARNINGS
12
~26%
~42%
~45%
HEDGING POSITION (1)
Oil
Natural Gas
2016
2016
56%
58%
Swaps $2.84
(1)
Swaps $47.79
As of February 23, 2016.
4Q'15 EARNINGS
13
CORPORATE INFORMATION
HEADQUARTERS
PUBLICLY TRADED SECURITIES
6100 N. Western Avenue
Oklahoma City, OK 73118
WEBSITE: www.chk.com
CUSIP
TICKER
3.25% Senior Notes due 2016
#165167CJ4
CHK16
6.25% Senior Notes due 2017
#027393390
N/A
6.50% Senior Notes due 2017
#165167BS5
CHK17
7.25% Senior Notes due 2018
#165167CC9
CHK18A
3mL + 3.25% Senior Notes due 2019
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CHK19
6.625% Senior Notes due 2020
#165167CF2
CHK20A
BRAD SYLVESTER, CFA
Vice President – Investor Relations
and Communications
6.875% Senior Notes due 2020
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CHK20
6.125% Senior Notes Due 2021
#165167CG0
CHK21
5.375% Senior Notes Due 2021
DOMENIC J. DELL’OSSO, JR.
Executive Vice President and
Chief Financial Officer
8.00% Senior Secured Second Lien Notes due 2022
4.875% Senior Notes Due 2022
#165167CK21
#165167CQ8
#U16450AT2
#165167CN5
CHK21A
N/A
N/A
CHK22
5.75% Senior Notes Due 2023
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CHK23
Investor Relations department
can be reached at ir@chk.com
2.75% Contingent Convertible Senior Notes due 2035
#165167BW6
CHK35
2.50% Contingent Convertible Senior Notes due 2037
#165167BZ9/
#165167CA3
CHK37/
CHK37A
2.25% Contingent Convertible Senior Notes due 2038
#165167CB1
CHK38
4.5% Cumulative Convertible Preferred Stock
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#U16450113/
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CHK PrD
CORPORATE CONTACTS
5.0% Cumulative Convertible Preferred Stock (Series 2005B)
5.75% Cumulative Convertible Preferred Stock
5.75% Cumulative Convertible Preferred Stock (Series A)
Chesapeake Common Stock
4Q'15 EARNINGS
14
N/A
N/A
N/A
CHK