Chesapeake Energy (CHK) Reports Selected Preliminary Q4 Results

Chesapeake Energy Corporation (NYSE: CHK) today reported selected financial and operational results for the 2018 fourth quarter. Highlights include:

• Estimated average 2018 fourth quarter production range of approximately 462,000 to 464,000 barrels of oil equivalent (boe) per day
• Estimated average 2018 fourth quarter oil production range of approximately 86,000 to 87,000 barrels (bbls) of oil per day; divested Utica oil volumes have been completely replaced by oil volume growth in the Powder River Basin and Eagle Ford Shale in the two months following the sale
• Achieved year-end 2018 Powder River Basin net production exit rate of approximately 38,500 boe per day (approximately 47 percent oil)
• Estimated 2018 fourth quarter capital expenditures of approximately $545 million, including $50 million of capitalized interest and Utica investments
• Utica Shale divestment and debt refinancing eliminated approximately $2.6 billion in secured leverage, positioning the company with ample liquidity and no significant near-term debt maturities; debt balance as of December 31, 2018 of approximately $8.2 billion including $419 million drawn on revolving credit facility

Doug Lawler, Chesapeake's President and Chief Executive Officer, commented, "Chesapeake continues to advance our strategic priorities of improving margins, reducing debt and achieving sustainable cash flow neutrality. In 2018, asset divestitures generated more than $2 billion in net proceeds which facilitated the retirement of our term loan and senior secured second lien debt. Total debt was reduced by approximately $1.8 billion from year-end 2017. Importantly, the divested daily oil volumes associated with the Utica sale, which represented 10% of our third quarter oil production, were replaced in the last two months of the year through our legacy South Texas and emerging Powder River Basin oil engines.

"Looking forward to 2019, we are confident in our ability to drive further competitive performance through the quality of our investments and our capital and operating discipline. We have secured a strong hedge position for gas and oil which provides stability and certainty in our cash generating capability. We plan to reduce our 2019 capital expenditures by lowering our rig count by approximately 20 percent, expecting to average 14 rigs versus our current rig count of 18. Further, we expect our capital efficiency to improve in 2019 as total net capital per rig line is projected to decrease by 15 to 20 percent compared to 2018. The improvement in our capital efficiency, along with our focus on our high-margin oil investments, should result in higher operating cash flow and stronger margins in 2019 compared to 2018.

"We look forward to consummating the merger with WildHorse Resources and further strengthening our portfolio and competitiveness with another strong oil growth asset. We plan to provide detailed capital guidance for the combined company later in the 2019 first quarter, but at present we anticipate operating four rigs on the WildHorse acreage in 2019. We look forward to further building on our track record of performance in 2019 and are excited to continue demonstrating our leadership and differential competitiveness."

Operations Update

In the Powder River Basin (PRB), Chesapeake achieved a net production exit rate of approximately 38,500 boe per day (approximately 47 percent oil and 60 percent total liquids) in December. Volumes are expected to accelerate during 2019, resulting in annual net production from the basin to more than double compared to 2018. Chesapeake is operating five rigs in the PRB, all of which are currently drilling the Turner formation.

The Eagle Ford Shale in Texas continues to deliver the highest margins in the company, primarily driven by premium Gulf Coast crude oil pricing. Despite the lingering effects of regional flooding in the area, the combination of strong well performance, greater volumes transported via pipeline compared to trucking and new field technologies resulted in Eagle Ford net production averaging approximately 105,000 boe per day (approximately 58 percent oil) for the 2018 fourth quarter, which is better than previously expected. During the 2018 fourth quarter, the company continued its Austin Chalk and Upper Eagle Ford appraisal programs and anticipates updating these results at the end of the 2019 first quarter. The company is currently utilizing four rigs in the Eagle Ford.

In the Marcellus Shale in Pennsylvania, Chesapeake continues to create significant free cash flow due to higher realized in-basin gas prices. Two new Lower Marcellus records were set in northern Sullivan County during the 2018 fourth quarter, demonstrating that appropriate development spacing along with longer laterals and better steering within the target zone can deliver exceptional value. The JOEGUSWA 4HC well had a lateral length of 13,803 feet and set a 24-hour initial production record of 62.6 million cubic feet of gas (mmcf) per day with a 2,600 psi flowing pressure. This well performance surpassed the current 24-hour initial production record from the McGavin well of approximately 61.8 mmcf per day. The JOEGUSWA 5HC well with a lateral length of 9,808 feet set a 24-hour initial production record of 73.4 mmcf per day at a 3,000 psi flowing pressure. While both wells had fracture stimulations using approximately 1,600 pounds of sand per foot of lateral, both wells were also bounded by previously drilled wells that were approximately 1,300 feet away, pointing to the advantage and opportunity that Chesapeake's acreage position provides in its ability to properly space future drilling locations.

Balance Sheet and Hedge Position Update

As of December 31, 2018, Chesapeake's principal amount of debt outstanding was approximately $8.167 billion, compared to $9.981 billion as of December 31, 2017. Additionally, the company has approximately $2.5 billion of available liquidity under its senior secured revolving credit facility.

During the 2018 fourth quarter, the company was very active in hedging 2019 oil and gas volumes and at December 31, 2018, Chesapeake had downside protection on approximately 590 billion cubic feet (bcf) of its forecasted 2019 gas production at $2.85 per thousand cubic feet (mcf). Additionally, the company has downside protection on approximately 16 million barrels (mmbbls) of its forecasted 2019 oil production at $58.61 per barrel and oil basis protection on approximately 7 mmbbls of its forecasted 2019 Eagle Ford oil production at a premium to WTI of more than $6.00 per barrel.

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