Chesapeake Energy (named after the childhood Chesapeake Bay haunts of a company founder) builds oil and natural gas reserves through the acquisition and development of oil and gas assets across the US. In 2012 the company had estimated proved reserves of 15.7 trillion cu. ft. of natural gas equivalent. Chesapeake has exploration and production assets in Appalachia, the Mid-Continent, the Barnett, Bossier, and Haynesville shale plays, the Permian Basin and the Rockies. In 2012 Chesapeake had 45,400 producing oil and natural gas wells that produced 3.9 billion cu. ft. of natural gas equivalent per day, the bulk of which was natural gas.
The company has natural gas resources in the Haynesville and Bossier Shales in northwestern Louisiana and East Texas; the Marcellus Shale in the northern Appalachian Basin of West Virginia and Pennsylvania; the Barnett Shale in the Fort Worth Basin of north-central Texas; and the Pearsall Shale in South Texas. In addition, it has built leading positions in the liquids-rich resource plays of the Eagle Ford Shale in South Texas; the Utica Shale in Ohio and Pennsylvania; the Granite Wash, Cleveland, Tonkawa and Mississippi Lime plays in the Anadarko Basin in western Oklahoma and the Texas Panhandle; the Bone Spring, Avalon, Wolfcamp and Wolfberry plays in the Permian and Delaware Basins in West Texas and southern New Mexico; and the Niobrara Shale in the Powder River Basin in Wyoming.
Chesapeake is a leading producer of natural gas, and a top 15 producer of oil and natural gas liquids. The company has vertically integrated many of its operations and owns major marketing, compression, midstream and oilfield services businesses. Through its Nomac Drilling unit, the company saves costs by operating its own equipment. In 2011 the company was operating more than 130 drilling rigs (39 owned and 93 leased.) Other major subsidiaries include Chesapeake Energy Marketing, Chesapeake Oilfield Services, and Chesapeake Oilfield Operating.
Sales and Marketing
Chesapeake Energy Marketing, provides natural gas, oil, and NGL marketing services, including commodity price structuring, contract administration and nomination services for Chesapeake, its partners and other producers. By aggregating volumes it seeks to increase the value of products to be sold to in various intermediary markets, end markets, and pipelines. Chesapeake's oil and NGL production is sold under market sensitive short-term or spot price contracts while its natural gas production is sold to purchasers under spot price contracts or percentage-of-proceeds and percentage-of-index contracts.
In 2012 Plains Marketing, L.P. accounted for 11% of the company's total natural gas, oil, and NGL revenues.
Chesapeake reported a 6% growth in revenues in 2012 thanks to higher natural gas, oil and NGL volumes and sales. The increase in production (in response to stronger market demand) was primarily generated from an increase in production from existing wells.
The company reported net loss of $769 million in 2012 (compared to net income of $1.7 billion in 2011) due to higher operating Expenses. primarily increased impairment of certain undeveloped leasehold, primarily in the Williston and DJ Basins.
Except for a revenue slump in 2009 due to the global recession and weakened demand for oil and gas activities, the company reported an upward trend in revenues from 2008 through 2012. However, the costs related to its rapid expansion coupled with low gas prices led to the company to run up heavy debts.
To get better financial returns the company is seeking to sell assets to secure capital. Hurt by continuing low natural gas prices, that year the company sold its midstream assets in 2012 and 2013 for $4.9 billion in three separate deals. As part of this move, in 2012 the company sold its limited partner units and its general partner interests in Chesapeake Midstream Partners to Global Infrastructure Partners for $2 billion. That year the company also sold about $6.9 billion of its Permian basin properties in order to pay down debt. It also sold Total E&P USA a $2.3 million, 25% joint venture stake in its Utica Shale (Ohio) assets.
In 2013 Chesapeake also agreed to sell assets in the Northern Eagle Ford Shale and Haynesville Shale to an EXCO Resources subsidiary for $1 billion.
In 2013 China-based Sinopec purchased a 50% undivided interest in 850,000 of Chesapeake's net oil and natural gas leasehold acres in the Mississippi Lime play in northern Oklahoma (425,000 acres net to Sinopec) for $1.02 billion. The deal was meant to raise cash for Chesapeake to pay down debt, among other initiatives.
It 2012 Chesapeake spun off oilfield service industry affiliate Chesapeake Oilfield Services.
As part of its strategy to reduce costs by having more ownership of the rigs it uses to drill its wells, in 2011 the company acquired Bronco Drilling (which owns 22 rigs) for $339 million. Chesapeake integrated Bronco's assets into its Nomac Drilling subsidiary.
With natural gas prices remaining low, Chesapeake in 2011 shifted its focus to exploiting gas fields with high liquids content (such as the Eagle Ford in Texas, the Utica Shale, and the Niobara Shale in Wyoming), allowing the company to produce high-priced natural gas liquids (NGLs). Looking to raise cash for future investments, in 2011 Chesapeake sold all of its Fayetteville Shale assets to BHP Billiton unit BHP Billiton Petroleum for about $4.7 billion.
In 2011 it sold a 33% stake in its shale play in south Texas to CNOOC for $1.1 billion, and agreed to a similar CNOOC deal for Chesapeake's assets in northeast Colorado and Southeast Wyoming.
Southeast Asset Management, Inc. holds about 14% of Chesapeake Energy.