CHK - Earnings call transcript Q4 2019 | Expand Energy Corporation

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Operator

Good morning. Welcome to Chesapeake Energy Corp’s fourth quarter and year end 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star key followed by zero.

After today’s presentation, there will be an opportunity to ask questions. you star question, your one a phone. touchtone ask may then press on To question, star please your withdraw To press then two. Please recorded. event is this note that being

to ahead. now Sylvester. would like turn conference I to Please over go the Brad

Brad Sylvester

presentation joining the Thank you everyone, XXXX we operational morning. today to morning that had Kate. fourth and our updated quarter discuss financial release for year. review our Hopefully a the you Chesapeake’s you’ve to and to results website call thank Good investor for and the and press posted full chance this

the note statements call, consist confirmed During will information, beliefs, future this morning’s assumptions we to and forecasts, reference statements be including in number be including underlying such making cannot today expectations, forward-looking regarding earnings cause our and from goals, that which that that statements will differ existing a discussed of results projections, statements, and by our other forward-looking performance, filings. there and factors our are actual identified of to materially SEC release in factors statements. the Please

except recognize undue law, duty no reliance undertake not forward-looking by such you update required any on statements. Please we to statements, place applicable and as that should

some across to refer measures also facilitate financial comparisons may We help periods which peers. with and non-GAAP

a non-GAAP measures in corresponding any can release. on to measure be GAAP For found we reconciliation use, earnings nearest the and our our website

our financial call questions. Doug and open Nick Patterson. Lawler, review for the will the will Dell’Osso, then teleconference are on today Frank me for operational up XXXX, we With Doug results and and

will to now thank turn I the Doug. With that, over you, and teleconference

Doug Lawler

Energy. synergies we of through at portfolio revenue accomplishments of significant our everyone. goal lower cost the notably $XXX morning good achieved growth our first high where progressive savings was of million of After change oil and in in year. Chesapeake we the capturing a asset, margin asset acquisition the XXXX, end selling important and asset transformed a and year a margin for Brad, you Thank XXXX

identify and amount to of deliver transactions our diversified across well portfolio the continued total maturities. near debt our We as portions of multi-basin as several executed reduce and we outstanding savings term cost to refinanced

far the was commodity prices, natural outlook commodity the which causing falling in we have on The continues a to our particularly recent cash in relative deliver in activity, from marked capital environment year execution by approved so generation and weeks progress weighted XXXX the softer much challenging today, half year. global with our trend on a flow economic XXXX. which price this reduction second strong of oil to pricing gas, program macro expectations further has Despite for deteriorated our rapidly built

date, a market plan face that XX%. discipline of year-over-year and is cash capex challenging reducing on by highlight we approximately the conditions, built capital in maximization, XXXX for flow To

cash declining volumes, to in oil flat neutral and a targeting are free business XXXX. We flow production, gas

under our We million year to non-core of confident half the million are to facility. $XXX revolving million through have $XXX in and in fund this second preserve asset the ability maturities and debt generate our in liquidity proceeds these sales $XXX to of maturing credit we

levels, billion price the Our split of filing current shares with $X have the to XX-K we reverse SEC that commence you of has our a reserve stock in and very by a number bank is methodology. see at billion to while Further, will low actions filing proved a valued valued in fallen few XXXX will $X credit under supported approximately large facility billion $X.X at we proxy base, very is weeks. $X billion the which to

sheet of and stability balance operating in we our of and company. our and present record of the in XX-K balance competitive and the quality margins the going fourth language our not the previous quarter, to the platform, SEC improvements liquidity we the filing. XXXX the track future concern are our be strengthen in With our our assets, efficiencies, Given improvements, of changes to will sheet strength capital confident made

improve steps with to our the position financial the continue the align balance to sheet and of will better We company operating the take necessary expertise.

improvements, we in With will Chesapeake’s ability these shareholder restore environment. market create to current the value

term transformation, from We and maintaining began and building and have operational excellence since standard for our billion stripped liabilities massive and execution reduced is costs over paramount we a $XX system in of debt value while long creation. our that all

operating synergies our the through successful our Wild achievement last and oil capabilities in integration demonstrated fully of We acquisition year. weighted Horse

working synergies we further and believe needs into proven have reduction additional in our capture and costs in for efficiencies portfolio overhead, are development areas. We multi-basin expertise confident assets our to operating the industry we our and a in consolidating are corporate shareholders. firmly record these track towards value, and further We

that NYMEX hedges oil, average for our realized is XX% lower did. the increase XX% to we lower equivalent our cost EBITDAX we exactly able would gas, adjusted what XX% and per margin XXXX, by production, for prices At onset barrel mix, Despite of and by said competitiveness improving our before we lower we increase growing for that and oil structure, were were NGLs, XX%. oil

in the XXXX shift a we from oil being and oil total XX%, the increased composition Wild oil from During massive XX% our Horse to in year, production in primarily our in acquisition, the by derived revenues of by gas XX% driven resulting XXXX.

reduced in $XXX combined and expenses. We GP&T G&A million also

Meanwhile, lower especially production, XXXX XXXX. achieve free GP&T, of neutrality on we a highest last level total is ago, built and XX% reported oil interest were year fourth history. increase were the G&A $XXX moving It to fourth production company day, lower to oil barrels the in the of overall averaged that quarter. fourth mix for commodity NGLs. flow this we to XX% quarter foundation compared EBITDAX all XXX,XXX of strong and expenses quarter, have cash in per compared to face million, a adjusted our gas that again a in of prices We and than the year, In significantly

operations, of commodity when oil our integration could of flow portfolio. prices Brazos our free we impressive were end. the successful by higher, primary of asset year the In to Valley last be was driver believed cash positive our the into growth Moving year February

realized in While first free and lower we flow for XXXX prices generate the fourth in week’s quarter XXXX, using projected asset the prices. almost last time cash achieved XXXX, more during in is free still the to that’s $XXX strip significantly positive million ultimately currently cash flow and, importantly,

driven the $XXX XXXX rates XXX lateral in a compared Valley, in million rig Lower Eagle XXXX, asset. the of completed less and approximately costs lateral Eagle in oil XX% barrels averaging XX a to wells further XX% for wells Lower production one decline to XX foot. we X% was were XXXX Chesapeake over per running and wells Overall, production oil approximately Average approximately we months costs in Brazos we placed savings performance on in year-over-year. wells by improvement and owned gross improvement This expect peak with to day. recognize Ford Ford able per grew in XXXX foot, XXXX well revenue improvements per $XXX were XX% Despite

affords highest saying changing and majority price the are this the depth intend capital of strong billion us of to Overall, for while level ever portfolio of proposed with the making our quality market the on focus XXXX to to opportunities, flow investments $X.X difficult breadth generation. we flexibility capital react margin commodity this our We conditions capital our $X.X reduction optimizes within program. vast debt the environment while the discipline, in to believe billion and the need cash we capital

XXXX. all cash further production to committed specific on costs reducing are focus our reducing We expenses with G&A in a and

we projecting have XX% more moved accordingly over lower year, guidance million G&A reflect G&A our a of total for the to $XXX XXXX, compared projected in reduction XXXX of LOE we a these savings. to both LOE are cost and reduction For and cost and than

water production supply expense and We more The savings chain all expect G&A overhead be synergies achieve through will workovers, to optimization, achieved program hauling through primarily adjustments, units. reductions. expense greater business treating across savings efficient

million we margin These commitments reduced marketing related in quarter. first buyouts these million of and Monday, with contracts will starting in consideration will our total inventory. the costs $XX fill future line further GP&T comprised agreements in GP&T $XXX of buyouts million approximately with commitments XXXX of our cash $XX associated improve certain remove On and to for

remains Moving our for balance top principal leverage million $XXX and approximately through the eliminated sheet, we providing quarter, to preserving revised facility, reducing priority in our exchanges a flexibility fourth credit company. the liquidity. and in In debt the covenants greater

debt revolving We with the structure and of Valley subsidiary Brazos also all loan. and virtually replaced the debt term facility a credit unrestricted retired secured

have of ample Today, billion, retire to is and maturities. which XXXX liquidity $X.X we XXXX approximately

around aggressively cost market to continue including to liquidity, transactions, and asset pursue all conversations our further capital discipline. further We improve advanced dispositions, avenues

optimizing at on per focus diligently and of hedged. XXXX portion a Approximately volatility, market price, flow, commodities volumes the $XX.XX our manage of have we oil projected our As we is hedged production cash XX% barrel. significant

than Mcf. production Additionally, XX% spreads with more of and is floor XX% our Mcf through April hedged per at swaps under to protected put $X.XX of $X.XX forecasted volumes with a XX% gas production October of roughly per

we a cash to meaningful we to cash flow $X.X higher margin to we year-over-year. relatively intend To volumes, XXXX. committed certain our range in without are flat are close, reaching of make program To oil free reductions $X.X capital to We billion plan to billion. our sacrificing reducing costs get there, to which keep

in maintenance finish Texas; will XXXX quarter oil quarter we South to third uplift volumes. year project due anticipated fourth however, to flat the dip expect We essentially an with our production slightly

to we investment our strength capital will us affords our While portfolio the production as conditions, prices gas market anticipate with to dictate. that decline reduced year-over-year and respond flexibility

achieve look Finally, to being future forward we our to transactions more able progress from expect soon. provide about to and meaningful A&D deleveraging

questions. call With a over turn for now we will few that, the

Operator

instructions] [Operator

from Our first question Neal comes from Go Dingmann ahead. SunTrust.

Neal Dingmann

think centers question the and what really I saying, on capital you’re about it’s activity, your discipline. First

so capital it there purely I like the previously into it were just on more, a back Really, or and would PRB, discipline in is reading those. of area, or these the activity in call we pressing anything Brazos is and You as plays? in returns looks pulling each on should this just rig such even liquids be

Doug Lawler

through portfolio Neal, The forward the we all that I and think assets think best I for look thanks capital just it’s look across based as reflects adjusting as XXXX flow is we our a are that on the morning, in way volumes capital at confidence described, and question. the we have, and of have. to have the generation that investment Good we level amount the good we opportunities I cash it that so quality XXXX, production in maintaining it

before, but that achieving with the free for additional have additional year. we’ve our of for were we shared there flow coming cost cash each capital is the in should is funding As assets available, begging discipline position

Neal Dingmann

$XXX you. to in million My of assets. or the details. $XXX that your million Great potential question, couple you just are mentioned a this things the see already for the you year? those potential Thank large second portfolio, works for on non-core hundred, Are just based

Doug Lawler

Sure.

As significant aware, has are portfolio. very you land still Chesapeake very have position. a a We large

we assets continue as at not meet opportunities We a have attracting capital we are think are large year. of divestiture near-term working and significant things about will funding, maturities, we have the portions that and for very portfolio this to presently look that of presently the on to

Neal Dingmann

Very thank good, you.

Operator

next Energy Advisors. from David Heikkinen Heikkinen is Go from question Our ahead.

David Heikkinen

taking for question. the Thanks

hedge Looking the what through free are Marcellus current activity expectations cash can for book, talk this your the at just year? and the without margins Marcellus you

Doug Lawler

even environment. asset see as phenomenal pricing Dave, current a the Yes we Marcellus in the still just

We we really be us, amount portfolio. in of amount strong of extremely see, that there of believe expect, capital, generates rates a still in the minimal with and returns the best as asset the really the as there presentation production cash capital for that an so limited to generate we’re spending to strong flow attractive you’ll some

David Heikkinen

What’s free your expectation? cash

Nick Dell’Osso

capital phenomenal look it inclusive returns. but test Nick. justified corporate the help hold answer, year, reality at last financial look the based We re-test asset but and and even year flow are It’s that and generates allocation hedges. back returns our on are and our our that. fantastic It they is a we on unpopular at of separate strip. would before generates I add it’s the Hedges last in cash just don’t we they an absolutely pre-hedging results results, and is year the that from it, a and today’s Marcellus we instrument that capital Dave, is the capital this our allocation. before year, up allocate

Frank Patterson

in breakeven the is back Frank price I’d put with when gas associated I this to, the Patterson. out kind on the margins Marcellus. the or think, of one David, quarters point we or some two guidance you associated ago

I think $XXX where Marcellus. out to Lower on $XXX is the wells break of kind the

effective in are running is to producing bringing line see some point the we’re line with of our that the very, going The additional in at volume system, so to cost. against, other good operators XXX about dropping system, the been efficiency of there to middle cost field pressure down to back on a pounds offset we’ve would and we’re very using pressure we’re drive more I very our pressure compression, really going some start what capital at production that low so associated thing

David Heikkinen

Versus cash what capacity the just free XXX and what do in XXXX flow I trying cash free expect harping to yield is. of to dial cash this, flow know be? that free year, last you on I’m I’m asset’s

Nick Dell’Osso

number below little guide dramatically different it flow Yes, that, I in will an maybe Marcellus asset, to be think just it Dave. to a than number, going don’t little a just a specifically, lower. cash I the for that but specific won’t we’re think be

David Heikkinen

annual cash you the in target? year free Okay, neutrality and to flow well, be full the as expect you the neutrality, thanks. neutral but cash Then get year through dip free is down, early then

Nick Dell’Osso

correct. That’s

David Heikkinen

Perfect, thank you.

Operator

from is Arun Morgan. JP Go ahead. question next from Our Jayaram

Arun Jayaram

thoughts JPM. was redetermination I help spring could is wondering your was you the if Nick, Arun close. we That Jayaram, season. enter preview This as

know or I discussion you liquidity. was you’ve redetermination thoughts liquidity $X.X period. the your give in I spring on banks, mentioned us could to if already position some you think the Doug started I changes with post wondering billion potential mentioned the but probably

Nick Dell’Osso

assets the for deck which they’re the of some $X little in on things, is going Doug’s that to It’s the base. us significant bank in which XX-K with you collateral to today, relative but under going and the SEC puds at collateral up use have and our the under the billion. north $X when is you value think the that’s the highlighted a a question. the then credit thanks to price notes way bit, look available We methodology, they of Arun, it there’s value facility similar billion adjust under they’re relatively billion lower rules, to about Sure end borrowing still risking a and we pretty $X

we be. group to debt what amount of about vastly multiple really borrowing with have any that pressure that’s around expectations our in from any the excess traditional we what borrowing When on we collateral think means of changes is have the expect don’t bank a to base, of is whatsoever. base The metric The of there should of that multiple EBITDA. a

see borrowing--a I think borrowing the base. have to base historically banks liked pre-reserve collateral times X.X or a of

on and in developed around current that, that billion, are developed estimate bank all be is well we of of Proved under to pricing, recent and in bank in stuff. all well advance we $X.X methodology We’re just proved this fact this using is so advance would alone.

base really standpoint. good season, Anything base where into borrowing course, we can stand collateral months of next we the but about you leading change, here a approach from of couple as feel

would so facility our improve, to good debt our like with pretty ongoing They to in about that have really XXXX, the of would do the have good under some but open and the all doesn’t talk forward, and until to to EBITDA great industry loan. group about how we efforts bank We see bank we, are and a have mature do going that They regularly they we shape. and hard to that. them thinking industry facility want against we’re coverage our dialog in and

Arun Jayaram

versus appraisal your the could Eagle Powder Powder and River looks Valley. terms Brazos talk why Brazos color. that Ford a was the the in the XXXX through It bit maybe comment We here in you magnitude a the than of maybe Basin. of harder little Frank, see in in activity like I you’re you’re to surprised Ford delineation, on for assets, bit declines Valley. oilier if wondering your follow-up, Eagle were River, the more about leaning and in A for Thanks efforts cutting Frank.

Frank Patterson

fourth the Powder were In substantially to wells River saw in actually you third some Arun. We Sure quarter underperforming Powder that good River, the in a about quarter we the talked to the really on quarter the of that. with a we north the We end had expectations quarter our in fourth and associated those to wells good field. outcome up had overcome fourth

section the to per you’re and about we wells As think kind ran got of in of in good four probably We a going part. which never lot on have talked gone to on the acreage not and as operators so move I no dissected four that we for entire well, basin, Turner. well our what’s our was point, section offset per out but operators just a the said that three, aware

look is the looks area we two had underneath that and they and Turner. is there We As to as still the maybe what section, a like thought. zones wells, in would one. Turner per appear so be actually so that section, zone. you is is wells our Frontier as can’t development acting one, what like Turner There close as to should They just be well it other what fractured it at even don’t act acreage. each today, good per people drill on thought looks as on in the it to re-think They’re the we’re them our one plan but having two then

quarter Then Niobrara, want the the and and be to instances. need our but to were probably now get your we’ve will going location the we the beating It’s thing dramatically, wells some pretty basin fractured is back to down more If conversation, it’s a Frontier down, some really is I this the we’ve so count won’t the listening go in that. within system wells on go relatively--we spacing don’t started on to wine type put say to because per rush that’s add - section, last to Turner, the that location three two we’ll curve I count to want and to going would in in offset are we real maybe it racking Niobrara Niobrara, there. understand like correct

that and a assets, in the we pretty back where best pretty We’re just operations. It’s costs, plan big there we cut where redevelopment with through hold on units. on because are and back to has have pleased working pleased acreage we to potential are we on asset cut on some

Arun Jayaram

a thanks Great, Frank. lot,

Operator

Our from Go is next America. Bank from question Doug Leggate of ahead.

John Abbott

Hello? this morning, Abbott. is John Good

Doug Lawler

Morning John, we’ve got you.

John Abbott

Yes, the it appears that John is here. other is line on This for Doug Doug Leggate. Abbott

Just several questions for us.

your First, are XXXX? free thoughts on into on heading maintaining cash flow what

Doug Lawler

Well have us, to goal and the investment and asset we for that the we’ve is as the flexibility adjust. a company capital and stated, of priority a portfolio

that profile going we’re a one-year to to in activity this getting never think look and flow upon execute our and cash I the point projection It’s business does that the free goal, from cash our pricing would one-year based like, XXXX a we generating time be positive be continue not intended flow it transactions be and with build point it’s assets. John. pricing, but on with neutral forward. largely this upon or confident to to in I beyond, in so goal. from been at It’s a the pleased year, expect capital are what we requires are we portfolio, mean, environment to the this dictated levels pleased

John Abbott

what commodity us just thoughts going is about given question the preferred paying dividend your second the are Then volatility? for forward,

Nick Dell’Osso

we that is would very protective very, of Hey look and the cash will that at good so think each we you this tell all remain flow, very flow very of all at at point question. cash look closely time. It’s time, analysis our we something I I protective our and are John,

John Abbott

you right, very thank much. All

Operator

Rice. Our Johnson next is from question Charles Go Meade from ahead.

Charles Meade

to see Can Doug, in elaborate industry comments, for what what least you to your I needs you you you either and the about to was playing see, in whole morning, and at the and opportunity think environment, heard prepared happen your like M&A the there. or Chesapeake consolidation. Good more industry, allude felt one comment twice the team In what that? on set as need you role you I

Doug Lawler

Sure Charles, great and it’s question. a

capture as But opportunities operations corporate there’s capture be our further with to be synergies to in there have the also we a all our we and believe, and know top to with a expertise overhead further that that execute consolidate further accomplished. that need we acquisition, capability that whether experience think companies it program I to further reduce just with in proven chain continued quartile further to and and and the way strength is or for operating cost significant to can a supply expertise agree Horse conduct Wild overall and have savings, value for shareholders. we capital

and and company and at several these look believe the sheet reduce that’s we portfolio, mindful we’ll use and As upon the strength available, continue we near-term of that levers to this that execute to improve of have, be all it. we can and that know we meet it our intend balance market weapons further we things the requires part debt, have we is operating of the and these also a are maturities there what platform we’re our to but all and we

Charles Meade

Doug. that elaboration, for Got it. That’s it me. for Thanks

Doug Lawler

Charles. Thanks

Operator

Kashy is from from Harrison question next Go Our Simmons ahead. Energy.

Kashy Harrison

oil-levered regions? that; how to think capex of about maintenance capital you this and XXXX grew like hold remarks, oil we wanted into confirmation thank the you’re and two, should One, it all, declined into QX then hold QX flat the please the correct Is I’m through Doug, keep flat? year-on-year. to rate volumes oil pretty taking year in volumes sounded to said XXXX flat questions. morning QX you and as that spending for prepared me think if wrong, the Good much to my production then in about what get maintenance to oil

Doug Lawler

some what to quarterly the volumes first on we your production, maintain flat is quarter. answer will The we will the going be is. it year forward. those and second area oil To to capex know be third question in this Yes, question, there South approximately relatively maintenance Texas the in maintenance that work Kashy, investing the

of We the results a also--the quarter. third or percent a I in a not - bit significant dip, timing talking about of so mean, in little our we’re till couple

at it note the and we just oil but When that working volumes keep any to bit called be also profile maintenance the is look the be dip timing investing it’s working flat. out you our those anything third there a of production year, to flat, minimize we’ll there. the over profile of amount of a in quarter relatively and all that there be we’ll isn’t But till production capital or to that concerning the of regarding the little

Kashy Harrison

Got it, both on helpful that’s fronts.

Doug, As environment. the follow-up, softening economic also about you my talked

for it to you XX? XXXX, You’re hedged to to what’s understand Is need also reduce for in activity it really say, that where back, XXXX. we pull you well trying breakeven was need point we just so XX,

cash of about XXXX think just goal neutrality? strip the we little think this the as I in regardless free you bit overarching earlier, touched but a should wherever flow is on

Doug Lawler

is will single on to that hedge play it’s exactly the company. often position is but the the debt it, at we with comfortable programs, I note reducing top to have all focus way a XXXX available, heavy forward, When the pricing Obviously that’s basin Absolutely, that, we priority our company. company in capital those to about levers think forward with Then look XXXX. not future environment look a in the Kashy. we’re very role in looking to of we and is the this our think as want we key addition further you

operate, diversity each build excellent the the in areas that We We operations we and strength improve and into we’ll we execute and pull. regardless to momentum product, can of to as pricing look continue what have upon multiple XXXX, in looks environment further levers of in can like. go we outstanding that that geography, gain diversity on so

Kashy Harrison

for Got it? to would be pricing in the right that about somewhere Is it, threshold think the XXXX XXs? and the way

Doug Lawler

clear constantly it’s and the that allocation an and returning, based capital profile, hedge sure the we’re to not with I You year. evaluating pricing are we’ll level the program. very capital it’s we about that well, the is capital so for that maintain process know, so make the at investment want We XX on, our we’re secured what have even thinking very, ongoing

really trying as and prices XXXX are as and think capital that less a that’s what sure make prudent we oil than and a years. better in to sub-$XX rigorously answer best Definitely investment anything we’re in the I question we price way is to $XX, a the sub-$X about think evaluating that gas we in price, continue and even those later deliver for we also and to that evaluate look program,

deteriorates So as capital below pull quick operating back so if much much that continue and philosophy will $XX. it that obviously discipline, as evaluate an a isn’t we it as spend, price prudent we’ll and to capital more and prices decline be to even

Kashy Harrison

for really it. Got it. appreciate the color, all Thanks

Doug Lawler

joining Okay, I for today. thank everyone us

a just remarks. few Operator, Sorry closing

a want flow as toward that to look I’m that cash just just achieving is confident free we reiterate I mandate Chesapeake. you goal ahead and a for can year but assure the not

great parts and focused is the all profitability that challenges. internal under with I’m our and the are heading, energy and of with pleased energy and very of that direction all employees and we’re focus, circumstances Our given the addressing some industry that the

improve Our continue reducing strong oil remain continue to our cash upon our efficiencies. costs XXXX capital in and and production will we’ll

to and and balance A&D focused are transactions quickly the capital as We as sheet. possible absolutely using our move markets sheet expedite determined strengthening we improve on balance quickly, and future to intend and

the to and additional concludes today you for I This questions. follow call if us encourage up have with you us

Operator

for presentation. attending you Thank concluded. today’s now has conference The

disconnect. now may You

Expand Energy (EXE) 26 Feb 202019 Q4 Earnings call transcript