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TheStreet Open House

Chesapeake Energy Corporation Reports Financial And Operational Results For The 2012 Fourth Quarter And Full Year

Management Comments

Steven C. Dixon, Chesapeake’s Chief Operating Officer, said, “We continue to deliver on our liquids growth targets, led by a year-over-year increase of nearly 40,000 barrels per day in oil production. We achieved this despite the sale of nearly 18,000 barrels per day of oil production associated with our exit from the Permian Basin during the 2012 third and fourth quarters. We believe this performance ranks Chesapeake among the top three organic oil growth stories in the industry for 2012. I am very proud of what our team has accomplished thus far and look forward to driving further liquids production growth and capital efficiencies in 2013.”

Domenic J. Dell’Osso, Jr., Chesapeake’s Chief Financial Officer, added, “Chesapeake delivered strong results during the 2012 fourth quarter. I am pleased to reaffirm our 2013 guidance for liquids production growth and drilling and completion capital expenditures, while at the same time reducing our cost guidance for many significant categories. Additionally, we are reaffirming the commitment of management and the Board of Directors to reducing financial leverage of the company through asset sales. I would also like to note we have protected a substantial portion of our projected operating cash flows in 2013 through downside hedge protection on approximately 85% of our projected oil production at an average price of $95.45 per barrel and approximately 50% of our projected natural gas production at an average price of $3.62 per mcf. This equates to approximately 72% of our projected 2013 natural gas, oil and NGL revenue, after differentials.”

Key Operational and Financial Statistics Summarized

The table below summarizes Chesapeake’s key results during the 2012 fourth quarter and compares them to results during the 2012 third quarter and the 2011 fourth quarter and also compares the 2012 full year to the 2011 full year.

     
Three Months Ended Full Year Ended
12/31/12   9/30/12   12/31/11 12/31/12   12/31/11
Average daily production (in mmcfe) 3,931 4,142 3,596 3,886 3,272
Natural gas equivalent production (in bcfe) 362 381 331 1,422 1,194
Natural gas equivalent realized price ($/mcfe) (a) 4.23 4.04 5.08 4.02 5.70
Oil production (in mbbls) 8,936 8,996 5,291 31,265 16,964
Average realized oil price ($/bbl) (a) 92.23 90.79 88.02 91.74 86.25
Oil as % of total production 15 14 10 13 9
NGL production (in mbbls) 4,634 4,130 4,476 17,615 14,712
Average realized NGL price ($/bbl) (a) 27.12 31.22 35.87 29.37 38.12
NGL as % of total production 8 7 8 7 7
Liquids as % of total realized revenue (b) 62 61 37 59 30
Liquids as % of unhedged revenue (b) 59 63 47 63 40
Natural gas production (in bcf) 280 302 272 1,129 1,004
Average realized natural gas price ($/mcf) (a) 2.07 1.97 3.87 2.07 4.77
Natural gas as % of total production 77 79 82 80 84
Natural gas as % of realized revenue 38 39 63 41 70
Natural gas as % of unhedged revenue 41 37 53 37 60
Marketing, gathering and compression net margin ($/mcfe) (c) 0.11 0.11 0.07 0.08 0.10
Oilfield services net margin ($/mcfe) (c)(d) 0.05 0.09 0.09 0.10 0.10
Production expenses ($/mcfe) (0.83 ) (0.84 ) (0.88 ) (0.92 ) (0.90 )
Production taxes ($/mcfe) (0.13 ) (0.14 ) (0.15 ) (0.13 ) (0.16 )
General and administrative costs ($/mcfe) (e) (0.23 ) (0.33 ) (0.35 ) (0.33 ) (0.38 )
Stock-based compensation ($/mcfe) (0.04 ) (0.05 ) (0.06 ) (0.05 ) (0.08 )
DD&A of natural gas and liquids properties ($/mcfe) (1.80 ) (2.00 ) (1.46 ) (1.76 ) (1.37 )
D&A of other assets ($/mcfe) (f) (0.20 ) (0.17 ) (0.26 ) (0.21 ) (0.24 )
Interest expense ($/mcfe) (a) (0.05 ) (0.10 ) (0.04 ) (0.06 ) (0.03 )
Operating cash flow ($ in millions) (g) 1,146 1,118 1,311 4,069 5,309
Operating cash flow ($/mcfe) 3.17 2.93 3.96 2.86 4.45
Adjusted ebitda ($ in millions) (h) 1,089 1,021 1,308 3,754 5,406
Adjusted ebitda ($/mcfe) 3.01 2.68 3.95 2.64 4.53
Net income (loss) to common stockholders ($ in millions) 257 (2,055 ) 429 (940 ) 1,570
Earnings (loss) per share – diluted ($) 0.39 (3.19 ) 0.63 (1.46 ) 2.32
Adjusted net income to common stockholders ($ in millions) (i) 153 35 394 285 1,936
Adjusted earnings per share – diluted ($) 0.26 0.10 0.58 0.61 2.80
 

(a)

Includes the effects of realized gains (losses) from hedging, but excludes the effects of unrealized gains (losses) from hedging.

(b)

“Liquids” includes both oil and NGL.

(c)

Includes revenue and operating costs and excludes depreciation and amortization of other assets.

(d)

2012 fourth quarter and full year include impact of certain consolidated investments along with results from Chesapeake Oilfield Services.

(e)

Excludes expenses associated with noncash stock-based compensation.

(f)

The decrease from 2011 to 2012 (year over year and quarter over quarter) is due to assets being classified as held for sale as of June 30, 2012 and not subject to depreciation thereafter. The assets were sold as part of the midstream sale to ACMP in December 2012.

(g)

Defined as cash flow provided by operating activities before changes in assets and liabilities.

(h)

Defined as net income (loss) before income taxes, interest expense, and depreciation, depletion and amortization expense, as adjusted to remove the effects of certain items detailed on page 20.

(i)

Defined as net income (loss) available to common stockholders, as adjusted to remove the effects of certain items detailed on page 21.

 

Hedging Positions Detailed

The following table summarizes Chesapeake’s downside hedge position through swaps and collars on its 2013 natural gas and oil production as of February 20, 2013. The company does not currently have hedges in place for its NGL production. Depending on changes in natural gas and oil futures markets and management’s view of underlying supply and demand trends, Chesapeake may increase or decrease some or all of its hedging positions at any time in the future without notice.

   
Natural Gas Oil
Year

% of Forecasted

Production

 

NYMEX

Natural Gas

% of Forecasted

Production

  NYMEX

Oil WTI

2013 50%   $3.62 85%   $95.45
 

Details of the company’s year-end hedging positions will be provided in the company’s Form 10-K filing with the Securities and Exchange Commission (SEC), and current positions are disclosed in summary format in management’s Outlook dated February 21, 2013, which is attached to this release as Schedule “A,” beginning on page 22. The Outlook has been updated from the Outlook dated November 1, 2012, attached as Schedule “B,” which begins on page 25, to reflect various updated information.

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