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Chesapeake Energy Corporation (CHK)

CHESAPEAKE ENERGY CORPORATION
(Exact name of Registrant as specified in its Charter)
Oklahoma 1-13726 73-1395733
(State or other jurisdiction of incorporation) (Commission File No.) (IRS Employer Identification No.)
6100 North Western Avenue, Oklahoma City, Oklahoma 73118
(Address of principal executive offices) (Zip Code)
(405) 848-8000
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

CHESAPEAKE ENERGY CORPORATION REPORTS 2016 SECOND QUARTER

OKLAHOMA CITY, August 4, 2016 – Chesapeake Energy Corporation (NYSE:CHK) today reported financial and operational results for the 2016 second quarter. Highlights include:

Doug Lawler , Chesapeake’s Chief Executive Officer , commented, “In 2016, we have made substantial progress on many fronts, including the reduction of more than $1 billion of debt, the reduction of complexity in our portfolio through the purchase of oil and natural gas interests previously conveyed in certain volumetric production payment transactions (VPPs), the continued improvement in our cash cost structure and the optimization of our current portfolio through non-core asset sales.

“Financial discipline remains our top priority, and we continue to work toward additional solutions to improve our liquidity, reduce our midstream commitments and enhance our margins. With continued improvements in our operating expenses and the disposition of non-core properties, we have refined our portfolio to provide a more competitive foundation for Chesapeake. In addition, the application of new technologies, including longer laterals and enhanced completion techniques, to our extensive undeveloped acreage position provides us with a robust portfolio of development opportunities.”

Lawler continued, “As a result of our portfolio’s strong performance to date in 2016, we have increased our total production guidance for the remainder of the year. As for an initial look into 2017, we believe our oil production will be relatively flat in 2017 as compared to 2016, while total production volumes are projected to be down approximately 5% compared to 2016 levels. With the breadth and depth of our large acreage position, the evolution of technologies being applied to our portfolio and the reduction in our leverage and complexity, we believe that the next few months will be a very exciting time for Chesapeake.”

For the 2016 second quarter, Chesapeake’s revenues declined by 54% year over year, primarily due to a decrease in the average realized commodity prices received for its production, unrealized losses from oil and natural gas derivatives and a decrease in the average realized commodity prices received for its marketing operations. Average daily production for the 2016 second quarter of approximately 657,100 barrels of oil equivalent (boe) consisted of approximately 90,500 barrels (bbls) of oil, 2.960 billion cubic feet (bcf) of natural gas and 73,200 bbls of natural gas liquids (NGL). As a result of the company's strong production through the first six months of 2016, Chesapeake has raised its full-year 2016 production

guidance by 3% (using midpoints) from 605,000 to 635,000 boe per day to a new range of 625,000 to 650,000 boe per day. A summary of the company’s guidance for 2016 is provided in the Outlook dated August 4, 2016, beginning on Page 17.

Chesapeake's cash expenses continue to decline due to its focus on cost discipline. Average production expenses during the 2016 second quarter were $3.05 per boe. G&A expenses (including stock-based compensation) during the 2016 second quarter were $1.02 per boe. Combined production and G&A expenses (including stock-based compensation) during the 2016 second quarter were $4.07 per boe, a decrease of 25% year over year and 2% from the 2016 first quarter.

Chesapeake reported a net loss available to common stockholders of $1.792 billion , or $2.48 per share, while the company's ebitda for the 2016 second quarter was $(1.394) billion . The primary drivers of the net loss were a noncash impairment of the carrying value of Chesapeake's oil and natural gas properties of approximately $1.045 billion , largely resulting from decreases in the trailing 12-month average first-day-of-the-month oil and natural gas prices as of June 30, 2016, as compared to March 31, 2016, and unrealized hedging losses of approximately $544 million . Adjusting for these and other items that are typically excluded by securities analysts, the 2016 second quarter adjusted net loss available to common stockholders was $145 million , or $0.14 per common share, while the company's adjusted ebitda was $252 million in the 2016 second quarter. Reconciliations of financial measures calculated in accordance with generally accepted accounting principles (GAAP) to non-GAAP measures are provided on pages 12 – 16 of this release.

Chesapeake’s total capital investments were approximately $456 million during the 2016 second quarter, compared to approximately $957 million in the 2015 second quarter, as summarized in the table below. While the company has reiterated its total capital investments program for 2016 of approximately $1.3 to $1.8 billion, it now expects to be at the higher end of its current guidance range due to additional drilling and completion activity as a result of efficiency gains and an acquisition of additional working interests in the Haynesville Shale. A summary of the company’s guidance for 2016 is provided in the Outlook dated August 4, 2016, beginning on Page 17.

2016 2016 2015
Activity Comparison Q2 Q1 Q2
Average operated rig count 9 8 26
Gross wells completed 131 57 121
Gross wells spud 49 41 109
Gross wells connected 141 80 173
Type of Cost ($ in millions)
Drilling and completion costs $ 337
$ 281
$ 787
Exploration costs and additions to other PP&E 56
16
56
Subtotal capital expenditures $ 393
$ 297
$ 843
Capitalized interest 63
68
114
Total capital expenditures $ 456
$ 365
$ 957

As of June 30, 2016, Chesapeake’s debt principal balance was approximately $8.7 billion , including approximately $100 million of borrowings outstanding on the company's $4.0 billion revolving credit facility, compared to $9.7 billion as of December 31, 2015, and $11.7 billion as of June 30, 2015. Since January

1, 2016, the company has retired at maturity, repurchased or exchanged for equity approximately $1.0 billion of debt, $518 million of which was due or putable to the company in 2017.

In April 2016, Chesapeake amended its $4.0 billion revolving credit facility maturing in 2019 to reaffirm its borrowing base, restructure financial covenants and increase its ability to issue secured debt. Using June 30, 2016 crude oil and natural gas strip pricing, Chesapeake estimates that the PV-10 of its proved oil and gas reserves was approximately $11.1 billion, compared to approximately $3.1 billion when using the average of commodity prices on the first day of the month over the trailing 12-month period (see Page 16 of this release for additional information). In addition to $100 million of borrowings under the company's revolving credit facility, letters of credit issued under the credit facility were approximately $813 million as of June 30, 2016, which included a $461 million supersedeas bond supporting the company's appeal of the judgment issued in 2015 with respect to the company's 2019 Notes litigation.

Through the 2016 second quarter, the company’s asset divestiture activities have totaled $964 million in net proceeds received to date, after post-closing adjustments. In addition, consideration of more than $100 million was withheld subject to certain title, environmental and other standard contingencies, the majority of which Chesapeake expects to collect in the third quarter. In conjunction with certain of these sales, Chesapeake repurchased oil and natural gas interests previously sold to third parties in connection with four of its VPP transactions for approximately $259 million. A majority of the acquired interests were part of the asset divestitures discussed above and the company no longer has any further commitments related to these VPPs. With the closing of these VPP acquisitions in the 2016 second quarter, the company has only two VPPs remaining.

The company continues to focus on select asset divestitures and is currently planning to sell additional properties by year-end 2016, including a portion of its Haynesville Shale properties. As a result, Chesapeake has raised its 2016 guidance for total gross asset divestitures either closed or under signed sales agreements to now be more than $2.0 billion, compared to its previous range of $1.2 to $1.7 billion.

In July 2016, Chesapeake purchased certain operated working interests to enhance its Haynesville Shale acreage position for approximately $87 million, increasing its average operated working interest in the area to approximately 83% and adding to its net acreage position by approximately 70,000 net acres. The company closed this transaction in the 2016 third quarter.

Chesapeake is currently utilizing 10 drilling rigs across its operating areas, three of which are located in the Eagle Ford Shale, three in the Haynesville Shale, three in the Mid-Continent area and one rig in the Utica Shale. Due to greater capital efficiencies and lower oilfield service costs, Chesapeake is currently planning to operate these 10 rigs throughout the remainder of the year and, as a result, plans to drill more than 100 additional wells and place approximately 75 additional wells on production in 2016. While the company is maintaining its 2016 total capital expenditures guidance to be approximately $1.3 to $1.8 billion, it now expects to be at the higher end of its current guidance range.

In July 2016, Chesapeake placed the CA 12&13-15-15 1H horizontal well on production, targeting the Haynesville Shale in Caddo Parish, Louisiana. This well's results provide further confirmation that the company's current completion optimization techniques, along with extended laterals, are having a significant impact on higher sustained flow rates and the increased potential for higher rates of return in all areas of the Haynesville. With reducing cluster spacing and increased proppant loading, this 10,000-foot lateral well reached a maximum production rate of approximately 38.0 million cubic feet of gas (mmcf) per day with a flowing tubing pressure of 7,400 psi. The company's current estimate of the ultimate recovery from this well is approximately 22 to 24 bcf with an estimated completed well cost of approximately $9.8 million. The PCK 1H, a 7,500-foot lateral well located in DeSoto Parish, reached a maximum production rate of 31.0 mmcf per day with a flowing pressure of 7,600 psi using similar completion techniques for an estimated well cost of $8.4 million. Chesapeake believes that leading-edge completion techniques, along with access to Gulf Coast pricing, could increase field-wide productivity by opening up new areas in the field that were previously economically challenged.

The table below summarizes Chesapeake’s key financial and operational results during the 2016 second quarter as compared to results in prior periods.

Three Months Ended
06/30/16 03/31/16 06/30/15
Oil equivalent production (in mmboe) 60
61
64
Oil production (in mmbbls) 8
9
11
Average realized oil price ($/bbl) (a) 44.31
37.74
71.39
Natural gas production (in bcf) 269
276
275
Average realized natural gas price ($/mcf) (a) 1.97
2.29
2.35
NGL production (in mmbbls) 7
6
7
Average realized NGL price ($/bbl) (a) 12.88
11.44
13.02
Production expenses ($/boe) (3.05 ) (3.36 ) (4.32 )
Gathering, processing and transportation expenses ($/boe) (8.04 ) (7.88 ) (7.64 )
Production taxes ($/boe) (0.32 ) (0.30 ) (0.52 )
General and administrative expenses ($/boe) (b) (0.86 ) (0.66 ) (0.89 )
Stock-based compensation ($/boe) (0.16 ) (0.13 ) (0.19 )
DD&A of oil and natural gas properties ($/boe) (4.43 ) (4.43 ) (9.39 )
DD&A of other assets ($/boe) (0.48 ) (0.48 ) (0.52 )
Interest expenses ($/boe) (a) (1.00 ) (0.98 ) (1.12 )
Marketing, gathering and compression net margin ($ in millions) (c) (25 ) 18
209
Operating cash flow ($ in millions) (d) 176
263
572
Operating cash flow ($/boe) 2.94
4.29
8.94
Adjusted ebitda ($ in millions) (e) 252
282
600
Adjusted ebitda ($/boe) 4.21
4.61
9.37
Net loss available to common stockholders ($ in millions) (1,792 ) (964 ) (4,151 )
Loss per share – diluted ($) (2.48 ) (1.44 ) (6.27 )
Adjusted net loss available to common stockholders ($ in millions) (f) (145 ) (120 ) (126 )
Adjusted loss per share ($) (g) (0.14 ) (0.12 ) (0.13 )

2016 Second Quarter Financial and Operational Results Conference Call Information

A conference call to discuss this release has been scheduled on Thursday, August 4, 2016, at 9:00 am EDT. The telephone number to access the conference call is 866-454-4209 or international toll 913-312-9308. The passcode for the call is 4546210. The number to access the conference call replay is 719-457-0820 or toll-free 888-203-1112 and the passcode for the replay is 4546210. The conference call will also be webcast live at www.chk.com in the “Investors” section of the company’s website. The webcast of the conference will be available on the website for one year.

Headquartered in Oklahoma City, Chesapeake Energy Corporation's (NYSE: CHK) operations are focused on discovering and developing its large and geographically diverse resource base of unconventional oil and natural gas assets onshore in the United States. The company also owns oil and natural gas marketing and natural gas gathering and compression businesses. Further information is available at www.chk.com where Chesapeake routinely posts announcements, updates, events, investor information, presentations and news releases.

This news release and the accompanying Outlook include "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, anticipated capital and operational efficiencies, planned development drilling and expected drilling cost reductions, general and administrative...


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