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Chesapeake reports

post-bankruptcy

profit

US SHALE producer Chesapeake Energy has
reported a profit in its first set of results since it
emerged from Chapter 11 bankruptcy protec-
tion earlier this year.
The Oklahoma-based company said on May
11 that it had achieved a net profit of $295mn, or
$2.75 per diluted share. It also announced that
it was launching a cash dividend programme
based on its “strong operating cash flow perfor-
mance” and reported its updated guidance for
the whole of 2021.
The first-quarter results come as a welcome
development for Chesapeake, which has been
through numerous ups and downs over the past
decade. The company rose to prominence as an
early mover in the shale boom, becoming the
US’ second-largest gas producer, but accumu-
lated significant debt along the way under for-
mer CEO Aubrey McClendon. It then tried to
turn around its performance under McClendon’s
successor, Doug Lawler, from 2013 onwards and
while it succeeded in reducing its debt load,
worsening market conditions made the process
far more challenging.
Unlike many other debt-ridden shale pro- Chesapeake reported average net production Chesapeake is once
ducers, Chesapeake survived the oil industry of around 436,000 barrels of oil equivalent per again turning its
downturn that began in 2014. However, the day (boepd) for the first quarter, comprised of attention to primarily
2020 oil price crash and subsequent collapse in roughly 77% natural gas and 23% liquids. The drilling for natural gas.
energy demand amid the coronavirus (COVID- company said it is currently operating seven rigs
19) pandemic proved too much for the company, across its portfolio, with three in the Appalachian
forcing it into bankruptcy protection. Basin, a further three in the Haynesville shale
and one rig in South Texas. It expects its produc-
Chesapeake emerged from bankruptcy pro-
In 2022, tection in February as a much smaller company, tion for the whole of 2021 to average 410,000-
Chesapeake with a plan to pivot back towards natural gas pro- 420,000 boepd, with total capital expenditure of
anticipates duction after attempting to focus more on oil in $670-740mn.
In 2022, Chesapeake anticipates output
recent years. Its bankruptcy plan had allowed it
output remaining to shed roughly $7.7bn worth of debt, though it remaining flat overall, but with gas rising to 85%
of its production mix. In line with the pivot back
raised about $1bn in new debt in order to com-
flat overall, but plete its exit from bankruptcy. to gas, reports emerged in late April that the
The company said at the time that it would company was weighing a sale of its South Texas
with gas rising direct around 85% of its 2021 spending to gas oil assets, in the Eagle Ford shale, which could
to 85% of its production while allowing its oil output to fetch up to $2bn.
The company generated $409mn of operat-
decline, and that it would spend $700-750mn
production mix. per year on new projects that would generate ing cash flow and ended the first quarter with
$340mn of cash on hand. On Chesapeake’s earn-
$400mn in annual free cash flow (FCF).
This was followed by Lawler’s sudden depar- ings call, Wichterich highlighted reduced per-
ture from the company last month, and Chesa- foot well costs in Appalachia – down to $700-750
peake is now searching for his replacement – a from $985 per foot in 2019 – and “really good
process that is expected to take several months base production support” in the Haynesville
– while Mike Wichterich serves as interim CEO. play.
Chesapeake is retaining the course set out by The company has said that its search for a new
Lawler, though, and its restrained approach is CEO would not rule out any potential sales or
yielding positive results, bolstered by improved purchases as consolidation continues in the oil
commodity prices and market conditions. and gas industry.™

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