Chesapeake Energy builds hydrocarbon reserves through the acquisition and development of oil and gas assets across the US. In 2015 the company had estimated proved reserves of 6 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 2015 Chesapeake had 43,700 producing oil and natural gas wells that produced 661,000 barrels of oil equivalent per day. In 2016 its founder and ex-CEO, Aubrey McClendon, died in a single car crash following a federal bid rigging indictment.
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; and the Barnett Shale in the Fort Worth Basin of north-central 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; and the Niobrara Shale in the Powder River Basin in Wyoming.
Chesapeake is the second-largest producer of natural gas and the 14th largest producer of oil and natural gas liquids (NGLs) in the US.
The company has two reportable operating segments. Marketing, gathering, and compression (which is engaged in marketing, gathering and compression of oil, natural gas and NGLs) accounted for about 60% of the Chesapeake's revenues. Exploration and production (which is responsible for finding and producing oil, natural gas and NGLs) accounted for the remaining.
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.
Sales to BP and Exxon Mobil accounted for 12% and 11%, respectively, of Chesapeake revenues in 2015 and 2014, respectively. There were no sales to individual customers constituting 10% or more of total revenues for the year 2013.
In 2015 Chesapeake's revenues from prior years were restated. Previously, oil, natural gas and NGL gathering, processing and transportation expenses were reflected as deductions to oil, natural gas and NGL sales. Beginning in the 2015 fourth quarter, the company reclassified its presentation of these expenses to report such costs as a component of operating expenses
After strong growth in 2013 and 2014 due to an increase in a variety of purchase and sales contracts it entered into with third parties for various commercial purposes, the company’s revenues decreased sharply by 39% in 2015 due to huge decline in oil, natural gas and NGL sales due to lower sales volume and prices. Also marketing, gathering and compression revenue decreased primarily as a result of lower oil, natural gas and NGL prices paid and received in its marketing operations.
As a result of the spin-off of its oilfield services business in June 2014, the company did not have oilfield services revenues and expenses in 2015.
The decrease in net income in 2015 was due to lower revenues and impairments of its oil and natural gas properties, including an other-than-temporary impairment of its FTS investment due to the extended decrease in the oil and natural gas pricing environment.
In 2015, operating cash flow decreased by 73%.
With substantial leasehold positions in most of the premier US onshore resource plays, Chesapeake is focused on finding and producing hydrocarbons in a responsible and efficient manner that seeks to maximize shareholder returns.
In 2016, the company was focusing on maximizing liquidity through reducing its capital budget; optimizing its portfolio through divestitures of assets; continuing to improve its gathering and transportation agreements and reducing its production and G&A expenses; and continuing to reduce its debt, focusing primarily on its 2017 and 2018 maturities.
To further improve its near-term liquidity, the company closed or signed $700 million in asset divestitures in the first quarter of 2016. In late 2016 Chesapeake agreed to sell acreage and producing properties in its Haynesville Shale operating area in northern Louisiana for $450 million to a private company.
In 2015, the company reduced its workforce by approximately 15% as part of an overall plan to reduce costs.
That year the company sold the oil and natural gas properties held by CHK Cleveland Tonkawa, L.L.C. (CHK C-T) to FourPoint Energy, LLC (FourPoint), and eliminated its ORRI obligation attributable to CHK C-T.
In 2014 the company completed the spin-off of its oilfield services business, which it previously conducted through its indirect, wholly owned subsidiary Chesapeake Oilfield Operating, L.L.C., into an independent, publicly traded company called Seventy Seven Energy.
That year Chesapeake agreed to sell its assets in the Southern Marcellus Shale and a portion of the Eastern Utica Shale in West Virginia to Southwestern Energy for $5.4 billion. It also sold its interest in Chaparral Energy for $215 million, and its crude oil hauling assets for $44 million.