CITIBANK ENERGY INVESTOR TOUR
December 16, 2015
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, and use leading-edge technology to drive capital efficiency, 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 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; the limitations our level of indebtedness may have on our financial flexibility; 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.
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
2
3Q’15 FINANCIAL AND OPERATIONAL RESULTS
ADJ. EARNINGS/FDS
ADJ. EBITDA
($0.05)
PROD. and G&A EXP.
$560mm
9% YOY
$4.88/boe(1)
LIQUIDS MIX(3)
ADJ. PRODUCTION
3% YOY
(2)
28%
667 mboe/d
ADJ. OIL PRODUCTION
4% YOY
of total
production
(2)
114 mbo/d
(1) Includes stock-based compensation
(2) Adjusted for asset sales
(3) Oil and NGLs collectively referred to as “liquids”
Note: Reconciliation of non-GAAP measures to comparable GAAP measures appear on pages 18 – 19
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
3
BUSINESS DELIVERY
Chesapeake continues to execute on its strategy
Financial Stability
Operational Leadership
Portfolio Strength & Flexibility
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
4
NEAR-TERM STRATEGY
Maximize
liquidity
Improve
margins
Use operating
and capital
flexibility as
a strength
Preserve
cash flow
generation
capability
• Amended credit
facility
• Restructure
midstream
contracts
• Optimize base
production
• Enhance field
development
• Focus on core
positions
• Leading-edge
technology to
drive capital
efficiency
• Divest noncore
assets
• Reduce field
operating
expenses
• Reduce G&A
expenses
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
5
FINANCIAL STABILITY
MAXIMIZING LIQUIDITY
• Proactively working to increase liquidity
˃ Amended credit facility agreement maturing in 2019
˃ Noncore divestitures expected to total $200 – $300mm by 1Q’16
• Maintaining capital discipline during challenging commodity environment
• On target to beat February production guidance for FY 2015 despite:
˃ $500mm capital spending reduction
˃ Average voluntary curtailment of ~35,000 boe/d YTD
Portfolio strength and flexibility provides financial stability;
spending less and producing more
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
6
FINANCIAL STABILITY
CREDIT FACILITY AMENDMENT
• Financial security and flexibility
> Borrowing base confirmed at
$4.0 billion
> Facility maturing in 2019
> Covenants restructured in light of low
commodity prices
> $2.4 billion of additional secured debt
available, should conditions warrant
• Operational flexibility
> Reduced commitments and
continually improving capital
efficiency positions Chesapeake to
run a reduced capital program in
2016 to support liquidity focus
> Depth of portfolio allows for
continued, methodical sales of
noncore assets to enhance value
$5.7 billion
In cash and undrawn credit facility
on 9/30/15
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
7
OPERATIONAL LEADERSHIP
• Enhanced base production of
existing assets
˃ Generated an additional 7 mmboe
net YTD
• Development teams extending
technological limits with operations
program
˃ Focused programs on
compression and artificial lift
˃ Drilled the longest laterals(1) in each
of our major operating areas in 2015;
significantly enhancing economics
˃ Reduced downtime through
enhanced winterization activities
˃ Long laterals improve capital efficiency
($/boe) by 20 – 25% companywide
2015 Record LL (ft.)
13,192
12,976
Avg. 2014 LL (ft.)
~7 mmboe
Additional net base production
YTD vs. 2015 budget forecast
9,395
10,020
9,366
7,371
6,186
4,464
Miss Lime
5,955
4,998
PRB
Haynesville
Utica
(1) Lateral lengths reported are drilled footage, not completed footage
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
8
Eagle Ford
SUBSTANTIAL GROWTH OPPORTUNITIES
MID-CONTINENT: MERAMEC AND OSWEGO
• Meramec
Mississippian/Meramec
Oswego
All Rights
Shallow Rights
˃ First well 27 days spud to RR
CHK
Industry
CHK Rouce 4-17-10 1H
Initial CHK 9,350’
Meramec well
CHK Hughes Trust 1H
Oswego Test
2052 BOEPD Peak
(93% Oil)
˃ Second well 18 days spud to RR
1723 BOEPD IP
(85% Oil)
• Oswego
˃ Three Oswego wells drilled to date
CHK Wittrock 16-16-9 1H
9,220’ Meramec well
1309 BOEPD IP
(79% Oil)
1374 BOEPD IP
(80% Oil)
Second Meramec well exceeds play
performance at a stabilized rate of
1,900 boe/d with greater than 2,000 psi
~1,200 locations
Meramec and Oswego Limestone
CHK Stangl 36-16-9 1H
10,000’ Meramec well
Oswego
Meramec
$36 PV-10 Break-Even
$37 PV-10 Break-Even(1)(3)
(1)(2)
Production Mix
Production Mix
NGL
Oil
Gas
(1)
(2)
(3)
Assumes NYMEX natural gas price of $3.00/mcf held constant
Assumes $7.1mm well cost
Assumes $3.2mm well cost
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
9
SUBSTANTIAL VALUE UNDER HBP ACREAGE
UPPER MARCELLUS
• Recent successful appraisal of the
Upper Marcellus unlocks more
than 1,000 economic locations(1)
˃ Well 1 peak rate 19 mmcf/d
˃ Well 2 peak rate 17 mmcf/d
˃ Future test wells in Susquehanna
and Wyoming counties
Test Well 1
19 mmcf/d
Test Well 2
17 mmcf/d
• Favorable development flexibility
as position is held by production
• No communication between Upper
and Lower Marcellus confirmed
>1,000 locations
Break-Even (PV-10)(1) Upper Marcellus
(1) Assumes NYMEX natural gas price of $3.00/mcf.
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
10
OPTIMIZING VALUE FROM BASE PRODUCTION
UTICA SHALE
• Operating more efficiently
2015 Gross Operated Base Production
180
˃ Compressor/Artificial lift
optimization
˃ Choke management
˃ Better winter ops preparation
• Midstream improvements
140
Avg Daily Rate (mboe/d)
˃ Pressure maintenance
program
160
120
100
80
60
40
20
˃ Line pressure decrease
˃ Fewer disruptions
0
Jan-15
Incremental Production
Avg Mboe/d
mboe/d
Previous Trend
Current Trend
Feb-15
Mar-15
Apr-15
May-15
12% increase
2015 1H production driven by
base optimization
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
11
Jun-15
DEVELOPMENT OPTIMIZATION
EAGLE FORD
• Leveraging Chesapeake’s
technical advantage
Rogers E-1H;
12,611’ LL(1)
˃ First wells with laterals greater
than 12,500’ on flowback
˃ 13,000’ wells provide capital
reduction of more than 20% when
compared to two 6,500’ laterals
Current Rigs
CHK Leasehold
County
˃ Extended laterals improve
Eagle Ford capital efficiency
($/boe) by ~20%
1800
Oil Production Rate
Oil Production Rate
Rogers Extended
Lateral
1200
Bopd
Control 6400'
600
Faith Extended
Lateral
Bopd
1800
MATURITY WINDOW
Oil Window
Dry Gas Window
Wet Gas Window
Transition Window
Faith-San Pedro F-4H;
13,192’ LL(1)
1200
Control 6500'
600
0
0
0
5
10
15
20
25
Days
30
35
40
45
0
5
10
15
20
25
Days
(1) Lateral lengths reported are drilled footage, not completed footage
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
12
30
35
40
TURNING EFFICIENCY INTO VALUE
HAYNESVILLE
• Extended laterals
˃ Two 7,500’ lateral tests flowing an average of
16.1 mmcf/d for more than 170 days
˃ Production test of first three 10,000’ laterals in
4Q’15
˃ Technological innovation and continued cost
improvement are driving value into the
Haynesville
Producing 7,500’ Nguyen wells
CHK Operated Rigs
10,000’ lateral in progress
CHK Leasehold
7,500 – 8,500’ laterals in progress
Haynesville Shale –
Extended Lateral Performance
20
$300
15
10 mmcf/d higher
10
$289
$275
$250
18
$200
$150
30
$246
$241
18
19
$234
$209
20
15
13
18
0
0
50
100
Days
150
15
$100
10
$50
5
$0
5
25
0
Q2
Q3
Q4
Q1
Q2
Q3
2014
2014
2014
2015
2015
2015
Avg(CPF)
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
Well Count
13
Wells Spud
Nguyen 7500 Rate (mcfpd)
Nguyen 7500 Avg FTP (psi)
Unit Rate (mcfpd)
Unit FTP (psi)
$/Foot
Avg Daily Gas Rate (mmcf/d)
25
Drilling Cost Per Foot
APPLYING NEW TECHNOLOGIES
MID-CONTINENT
Extend and Multilateral Wells
Mississippi Lime
County
CHK Section Summary
• Multilateral wells
Multilateral
Wilber 26-27-11 1H
TD 10/8/2015
˃ First multilateral expected to TIL
mid-December
˃ Potential to spread technology to other
plays – significant cost saving potential
Extended Laterals
JJJ 23-25-11 1H
Est TIL 11/20/2015
Sunny 23-25-11 1H
TIL in Q4 2015
• Multisection extended laterals
˃ Drilled two extended multisection laterals
˃ Saves ~$1.4mm as compared to two
standard laterals
27% decrease
in D&C costs compared to drilling
two standard laterals
Initial Miss Lime Multilateral well exceeds
1,200 boe/d
Multisection
Extended Laterals
Multilateral Wells
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
14
PORTFOLIO STRENGTH AND FLEXIBILITY
Natural Gas Break-Even (PV-10) (1)
$3.50
Oil Break-Even (PV-10) (2)
$60.00
$3.00
$50.00
$2.50
$40.00
$2.00
$30.00
$1.50
$20.00
$1.00
$10.00
$0.50
$0.00
$0.00
HAYNESVILLE
UTICA DRY
UTICA WET
MARCELLUS
PRB SUSSEX
MISS LIME
EAGLE FORD
Chesapeake’s diverse portfolio of highly efficient investments
is built to withstand the current commodity price environment
(1) Assumes NYMEX oil price of $50/bbl held constant
(2) Assumes NYMEX natural gas price of $3.00/mcf held constant
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
15
MID-CON
STACK
CHESAPEAKE’S STRATEGIC SCORECARD
Financial
Stability
Operational
Leadership
Portfolio Strength
and Flexibility
Maximize liquidity
Credit facility maturing in 2019; Covenants restructured in light of
low commodity prices
Restructure
midstream contracts
Finalized new gas gathering agreements in the Haynesville and
dry gas Utica
Noncore divestitures expected to total $200 – $300mm by 1Q’16;
evaluating substantial noncore assets still in the portfolio
Divest noncore
assets
Improve margins
Significant improvements in LOE and G&A; ~$200mm removed
from cost structure
Base production
optimization
Optimized base production generated an additional 7 mmboe
net vs. 2015 base production forecast
Field development
optimization
Chesapeake drilled record laterals in major operating areas
in 2015; significantly enhancing economics
High-grade and
optimize portfolio
Optimization and reservoir characterization has created a
diverse portfolio with multiple economic investment opportunities
at current prices
Appraise HBP
acreage position
Substantial progress toward appraising HBP position;
currently appraising Meramec, Oswego and Upper Marcellus
Chesapeake is executing on its strategy to simplify and
optimize the business for a prosperous future
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
16
APPENDIX
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
17
RECONCILIATION OF ADJUSTED
EARNINGS PER SHARE
($ in mm)
Three Months Ended:
9/30/2015
9/30/2014
($4,695)
$169
58
(384)
(58)
--
Restructuring and other termination costs
44
(9)
Provision for legal contingencies
--
62
4,506
--
Impairments of fixed assets and other
66
9
Net (gains) losses on sales of fixed assets
(1)
(54)
--
447
(3)
11
($83)
$251
Preferred stock dividends
43
43
Earnings allocated to participating securities
--
3
($40)
777
($0.05)
$297
776
$0.38
Net income available to common stockholders
Adjustments, net of tax:
Unrealized (gains) losses on commodity derivatives
Unrealized gains on supply contract derivatives
Impairment of oil and natural gas properties
Repurchase of preferred shares of CHK Utica
Other
Adjusted net income available to common
stockholders(1)
Total adjusted net income attributable to CHK
Weighted average fully diluted shares outstanding(2)
Adjusted earnings per share assuming dilution(1)
(1) Adjusted net income available to common stockholders and adjusted earnings per share assuming dilution are not measures of financial performance under accounting
principles generally accepted in the United States (GAAP), and should not be considered as an alternative to net income available to common stockholders or diluted
earnings per share. Adjusted net income available to common stockholders and adjusted earnings per share assuming dilution exclude certain items that management
believes affect the comparability of operating results. The company believes these adjusted financial measures are a useful adjunct to earnings calculated in accordance
with GAAP because:
i.
Management uses adjusted net income available to common stockholders to evaluate the company's operational trends and performance relative to other oil
and natural gas producing companies.
ii.
Adjusted net income available to common stockholders is more comparable to earnings estimates provided by securities analysts.
iii.
Items excluded generally are one-time items or items whose timing or amount cannot be reasonably estimated. Accordingly, any guidance provided by the
company generally excludes information regarding these types of items.
(2) Weighted average fully diluted shares outstanding include shares that were considered antidilutive for calculating earnings per share in accordance with GAAP.
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
18
RECONCILIATION OF ADJUSTED EBITDA
($ in mm)
Three Months Ended:
Cash provided by operating activities
Changes in assets and liabilities
(1)
Operating cash flow
Net income
Interest expense
Income tax expense (benefit)
Depreciation and amortization of other assets
Oil, natural gas and NGL depreciation, depletion and amortization
EBITDA(2)
9/30/2015
9/30/2014
$318
$1,184
158
109
$476
($4,639)
$1,293
$692
88
17
(937)
437
31
37
488
688
($4,969)
$1,871
Adjustments:
Unrealized losses on oil, natural gas and NGL derivatives
67
(622)
(70)
--
Restructuring and other termination costs
53
(14)
Provision for legal contingencies
--
100
5,416
--
Unrealized gains on supply contract derivatives
Impairment of oil and natural gas properties
Impairments of fixed assets and other
Net (gains) losses on sales of fixed assets
79
15
(1)
(86)
Net income attributable to noncontrolling interests
(13)
(30)
Other
(2)
2
$560
$1,236
(3)
Adjusted EBITDA
(1)
Operating cash flow represents net cash provided by operating activities before changes in assets and liabilities. Operating cash flow is presented because management believes it is a useful adjunct to net cash provided by operating activities under
GAAP. Operating cash flow is widely accepted as a financial indicator of an oil and natural gas company's ability to generate cash that is used to internally fund exploration and development activities and to service debt. This measure is widely used by
investors and rating agencies in the valuation, comparison, rating and investment recommendations of companies within the oil and natural gas exploration and production industry. Operating cash flow is not a measure of financial performance under
GAAP and should not be considered as an alternative to cash flows from operating, investing or financing activities as an indicator of cash flows, or as a measure of liquidity.
(2) Ebitda represents net income before interest expense, income taxes, and depreciation, depletion and amortization expense. Ebitda is presented as a supplemental financial measurement in the evaluation of our business. We believe that it provides
additional information regarding our ability to meet our future debt service, capital expenditures and working capital requir ements. This measure is widely used by investors and rating agencies in the valuation, comparison, rating and investment
recommendations of companies. Ebitda is also a financial measurement that, with certain negotiated adjustments, is reported to our lenders pursuant to our bank credit agreements and is used in the financial covenants in our bank credit agreements.
Ebitda is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income, income from operations or cash flow provided by operating activities prepared in accordance with GAAP.
(3) Adjusted ebitda excludes certain items that management believes affect the comparability of operating results. The company believes these non-GAAP financial measures are a useful adjunct to ebitda because:
(1) Management uses adjusted ebitda to evaluate the company's operational trends and performance relative to other oil and natural gas producing companies.
(2) Adjusted ebitda is more comparable to estimates provided by securities analysts.
(3) Items excluded generally are one-time items or items whose timing or amount cannot be reasonably estimated. Accordingly, any guidance provided by the company generally excludes information
regarding these types of items.
Accordingly, adjusted ebitda should not be considered as a substitute for net income, income from operations or cash flow provided by operating activities prepared in accordance with GAAP.
CITIBANK ENERGY INVESTOR TOUR DECEMBER 2015
19
CORPORATE INFORMATION
HEADQUARTERS
PUBLICLY TRADED SECURITIES
6100 N. Western Avenue
Oklahoma City, OK 73118
WEBSITE: www.chk.com
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