JOHNSON RICE 2017 ENERGY CONFERENCE
Transcript of JOHNSON RICE 2017 ENERGY CONFERENCE
JOHNSON RICE 2017 ENERGY CONFERENCENew Orleans, Louisiana
September 26, 2017
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FORWARD-LOOKING STATEMENTS
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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 of1934. Forward-looking statements are statements other than statements of historical fact. They include statements that give our current expectations, guidance 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 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, 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; the availability of cash flows from operations and other funds to finance reserve replacement costs or satisfy our debt obligations; 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 to 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/or cyber-attacks adversely impacting our operations; potential challenges by SSE’s former creditors of our spin-off of 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; the effectiveness of our remediation plan for a material weakness; 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 presentation, except as required by applicable law. In addition, this presentation contains time-sensitive information that reflects management’s best judgment only as of the date of this presentation.
We use certain terms in this presentation such as “Resource Potential,” “Net Reserves” and similar terms that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. These terms include reserves with substantially less certainty, and no discount or other adjustment is included in the presentation of such reserve numbers. U.S. investors are urged to consider closely the disclosure in our Form 10-K for the year ended December 31, 2016, File No. 1-13726 and in our other filings with the SEC, available from us at 6100 North Western Avenue, Oklahoma City, Oklahoma 73118. These forms can also be obtained from the SEC by calling 1-800-SEC-0330.
JOHNSON RICE 2017 ENERGY CONFERENCE
OUR STRATEGYSTRONG THROUGH COMMODITY PRICE CYCLES
JOHNSON RICE 2017 ENERGY CONFERENCE 3
BUSINESS STRATEGIES:
Financial Discipline
Business Development
Profitable and Efficient Growth from Captured Resources
Exploration
Delivering the 2017 plan
$2 – $3 billion of asset sales
Focused on cash flow neutrality
Retain posture for growth
Capital allocation focused on portfolio expansion optionality
2H 2017 and 2018 Priorities
MOMENTUM BUILDING INTO 4Q’17DELAYS OF 3Q’17 ARE BEHIND US
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Estimated 3Q’17 total production of ~542 mboe/d
Estimated 3Q’17 oil production of ~86 mbo/d
4Q’17 production accelerating due to TILs
~125 TILs projected for 4Q’17; ~74 in STX
We now expect to average 100 mbo/d in 4Q’17
450
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Net pro
duction (
mboe/d
)
Total Company Production
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Q1 2017 Q2 2017 Q3 2017 Q4 2017
Projected 2017 TILs
South Texas Mid-Con Utica Marcellus Rockies Gulf Coast
OPERATIONS SETTING THE STAGE AS WE ENTER 2018
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Oil growth, efficiencies creating margin expansion
Drilling longer laterals
Enhanced completion designs
Testing spacing assumptions
Prolific CHK producers driven by pushing technology across the portfolio
Marcellus McGavin 6H ~61 mmcf/d
PRB Rankin 1H ~2,800 boe/d
STX Blakeway 2H ~3,200 boe/d
HSVL Hunter ~38 mmcf/d
More to come with exploitation in PRB (multiple zones), Louisiana (Bossier), NE PA (Utica) and Mid-Con (Chester)
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Net
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mbo/d
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Projected Total Oil Production
South Texas Mid-Con Utica Rockies
Powder River Basin
˃ Hotspot advantage
˃ Stacked pay opportunities
˃ Significant resource potential
2017 CAPITAL ALLOCATIONFLEXIBLE PROGRAM – VALUE FOCUSED
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Powder River Basin2 Rigs / 1 Frac Crew25 – 30 Spuds23 – 28 TILS
POWDER RIVER BASINBUILDING MOMENTUM
Moving to development phase
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Estimate Actual0
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Net Production Potential
Analyst Day ProjectionOil growth provided by Sussex, Turner and Niobrara
More Turner and Sussex TILs in 2H17
Third rig in October –Turner focused
~325 permits approved Projected 2017 TILs10
5
0AUG 2017 SEP 2017e OCT 2017e NOV 2017e DEC 2017e
POWDER RIVER BASIN – TURNER UPDATEOUTSTANDING INITIAL RESULTS
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Rankin 5-33-68 1HTIL 5/17/2017 – 4,500' lateralPeak rate – 2,886 boe/d (51% oil)120-day cumulative – 79 mbo, 577 mmcf
Sundquist 9-34-71 13HTIL 3/16/2017 – 7,100' lateral Peak rate – 2,560 boe/d (80% oil)180-day cumulative – 209 mbo, 357 mmcf
Graham 23-35-71 15HTIL 9/8/2017 (6 days) – 4,500' lateralPeak rate to date – ~1,700 boe/d (~80% oil)Well still cleaning up
OIL
CONDENSATE
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PRODUCING MONTHS
CU
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CUM BOE/1000 FT vs Producing Months
Industry Turner Offsets
CHK Turner Producers
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50,000
Rankin 5-33-68 1H
Sundquist 9-34-71 13H
Graham 23-35-71 15H
POWDER RIVER BASIN – TURNER UPDATEFUTURE TESTS
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• Third rig in October –Turner focused
• Potential tests for 2017 – 2018
˃ Spacing Test – 6 wells
• Current assumption 2,640’
˃ Extents Test – 5 wells
˃ Continuing to evaluate high-graded position –3 wells in 2017, 17 wells in 2018
OIL
CONDENSATE
TURNER
460 mmboe
Spacing Test
Extents Test
Highgrade Evaluation
POWDER RIVER BASIN – SUSSEX SANDSTONEHIGHLY ECONOMIC OIL PLAY
• Dominant position in the play
• Development mode
• Utilizing seismic to delineate fairway
• ~165 locations˃ Assumes 1,320' – 1,980' spacing
˃ Overpressured – high deliverability
• Targeted development through 2020˃ EUR: ~750 – 1,350 mboe
˃ Oil breakeven price: ~$30 – $35(1)
˃ ROR: ~ 38% – 55%(2)
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51%36%
13%
Sussex Production Mix
Oil Gas NGL
Months on Production
Gro
ss C
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ula
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CHK SussexIndustry Sussex
Sussex Performance
(1) PV10 positive breakeven price assuming $3/mcf gas pricing(2) Assumes $3/mcf gas and $50/bbl oil
SUSSEX
150 mmboe
POWDER RIVER BASIN – SUSSEX SANDSTONEWHERE WE ARE NOW AND WHERE WE ARE GOING
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TURNING IN LINE
• 10 gas condensate wells˃ Finishing completions in September
• 1 black oil appraisal well
UPCOMING LOCATIONS
• 15 volatile oil wells
• 6 gas condensate wells
South Texas
˃ Oil production growth engine
˃ Longer laterals driving value
˃ Enhanced completions yielding encouraging results
2017 CAPITAL ALLOCATIONFLEXIBLE PROGRAM – VALUE FOCUSED
Eagle Ford Shale6 Rigs / 4 Frac Crews175 – 195 Spuds 155 – 175 TILS
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SOUTH TEXAS – EAGLE FORDACCELERATING VALUE WITH LONGER LATERALS
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$21
$15$17
$11$9
2013 2014 2015 2016 2017E
South Texas F&D Cost (1)
($/boe)
Capital efficiency improvesFaster cycle times, longer laterals
Large remaining potential Estimated net resources of > 2.0 bboe
Oil growth engine~10% oil volume growth 4Q’16 vs. 4Q’17
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Days
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(1) F&D Costs referenced in this chart are net capital costs divided by net EUR per well. Wells are binned by year in which they were TIL’d and then were averaged across that year
What we are learningLonger laterals are paying off
Enhanced completions with upspacing are leading to improved well results
Planning to test spacing concept across the field
SOUTH TEXAS – EAGLE FORDMORE VALUE, LESS CAPITAL INTENSITY
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0
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lative
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ctio
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o)
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Blakeway 2H CHK Offsets Industry Offsets
Projected 2017 TILs30
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0AUG 2017e SEP 2017e OCT 2017e NOV 2017e DEC 2017e
Blakeway915' spacing vs. 330' – 600' in the area
CHK Drilled Lateral
Blakeway 1 C DIM 2H
CHK Leasehold
2017 CAPITAL ALLOCATIONFLEXIBLE PROGRAM – VALUE FOCUSED
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Gulf Coast
˃ Longer laterals creating greater value
˃ Refracs improve capital efficiency
˃ Bossier resource potential
Haynesville Shale3 Rigs / 2 Frac Crews30 – 35 Spuds32 – 37 TILS
HAYNESVILLEDELIVERING EXCEPTIONAL PRODUCTIVITY
(1) Source: Heikkinen Energy Associates, Drillinginfo. Wells are adjusted to a 7,500’ lateral
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Delivering monster IPsHunter 1H – 38 mmcf/d, 7,500' lateral, 3Q 2017 TILNguyen 1H – 36 mmcf/d, 9,500' lateral, 3Q 2017 TILPH 1H – 33 mmcf/d, 7,500' lateral, 2Q 2017 TIL Crow 2H – 36 mmcf/d, 7,500' lateral, 2Q 2017GLD 1H – 42 mmcf/d, 8,200' lateral, 1Q 2017 TIL
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roductio
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Haynesville Production(1)
CHK Wells
Average
HEA Hville (2 Bcf/1,000') TC
1,200+ locationsPost divestiture and optimized for longer lateral development
2017 CAPITAL ALLOCATIONFLEXIBLE PROGRAM – VALUE FOCUSED
Appalachia
˃ Optimizing stimulation designs
˃ Utica oil growth
˃ Significant resource potential
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Appalachia2 Rigs / 2 Frac Crews50 – 65 Spuds110 – 130 TILS
Strong returns2017E FCF ~$315mm(1)
2017E capital ~$125mm
MARCELLUS SHALEENHANCED COMPLETIONS DELIVERING VALUE
(1) Assumes $3/mcf price deck (2) 2,900 undrilled locations: 1,500 represent Upper Marcellus locations and the remaining are Lower Marcellus locations
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Record results – 61 mmcf/d McGavin E WYO 6H, IP30 55 mmcf/dEnhanced completion designTIL 7/28/2017, ~10,500' lateral
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8 Net
Opera
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Gro
ss G
as R
ate
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mcf/d)
Production Forecast Actual Production Actual Capital
Core expansion opportunityConfirmed by recent industry result of 37 mmcf/d in Bradford County
Utica appraisalCore planned for early 2018~70,000 net perspective acres
McGavin 6HIP: 61 mmcf/d
Industry Well
OUR STRATEGYSTRONG THROUGH COMMODITY PRICE CYCLES
JOHNSON RICE 2017 ENERGY CONFERENCE 19
BUSINESS STRATEGIES:
Financial Discipline
Business Development
Profitable and Efficient Growth from Captured Resources
Exploration
Delivering the 2017 plan
$2 – $3 billion of asset sales
Focused on cash flow neutrality
Retain posture for growth
Capital allocation focused on portfolio expansion optionality
2H 2017 and 2018 Priorities
Appendix
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OilOct–Dec 2017 (1)
63%
Swaps $50.36/bbl
NGLOct–Dec 2017 (1)
8%
Propane Swaps $0.76/gal
Natural GasOct–Dec 2017 (1)
82%
72%Swaps
10%Collars $3.25/$3.68/mcf
NYMEX
$3.16/mcfNYMEX
HEDGING POSITION
(1) As of 9/25/17, using midpoints of total production from 9/25/2017 Outlook
~532 bcf of 2018 gas hedged with swaps at an average price of $3.11
~47 bcf of 2018 gas hedged with collars at an average price of $3.00/$3.25
21
~12 mmbbl of 2018 oil hedged with swaps at an average price of $51.22
JOHNSON RICE 2017 ENERGY CONFERENCE
~1.8 mmbbl of 2018 oil hedged with three way collars at an average price of $39.15/$47.00/$55.00
DEBT MATURITY PROFILE
JOHNSON RICE 2017 ENERGY CONFERENCE 22
$55
$380
$852
$2,320
$2,188
$338
$1,000
$1,250
$750
$0
$500
$1,000
$1,500
$2,000
$2,500
2017 2018 2019 2020 2021 2022 2023 2025 2026 2027
$ m
illio
n
As of 9/25/17
CORPORATE INFORMATION
JOHNSON RICE 2017 ENERGY CONFERENCE 23
HEADQUARTERS
6100 N. Western AvenueOklahoma City, OK 73118WEBSITE: www.chk.com
CORPORATE CONTACTS
BRAD SYLVESTER, CFAVice President – Investor Relations and Communications
DOMENIC J. DELL’OSSO, JR. Executive Vice President and Chief Financial Officer
Investor Relations department can be reached at [email protected]
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