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 2014 the company had estimated proved reserves of 10.7 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 2014 Chesapeake had 45,100 producing oil and natural gas wells that produced 729,000 barrels of oil 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 the second-largest producer of natural gas and the 10th largest producer of oil and natural gas liquids (NGLs) in the US.
The company has two reportable operating segments, exploration, and production (which is responsible for finding and producing oil, natural gas and NGLs) and marketing, gathering, and compression (which is engaged in marketing, gathering and compression of oil, natural gas and NGLs).
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 Exxon Mobil and Plains Marketing accounted for 12% and 11%, respectively, of Chesapeake revenues in 2014 and 2012, respectively. There were no sales to individual customers constituting 10% or more of total revenues for the year 2013.
In 2014, net sales increased by 20% due to higher sales from oil, natural gas and NGL and marketing, gathering, and compression segments, partially offset by a decline in oilfield services revenues.
Revenues and operating expenses from marketing business increased substantially in 2014 and 2013 primarily as a result of an increase in a variety of purchase and sales contracts it entered into with third parties for various commercial purposes, including credit risk mitigation and to help meet certain of its pipeline delivery commitments.
Net income increased by 165% due to increased revenue, decreased oilfield service expense and Restructuring and other termination costs partially offset by increased Deferred income taxes. As a result of the spin-off of oilfield services business in June 2014, the company did not have oilfield services revenues and expenses in the second half of the year.
Cash provided by operating activities increased by $20 million that year.
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 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.
In 2013 it also sold assets in the Northern Eagle Ford Shale and Haynesville Shale to an EXCO Resources subsidiary for $1 billion.
In 2013 the company sold its 50% undivided interest in 850,000 acres in northern Oklahoma (its Mississippi Lime joint venture with Sinopec International Petroleum Exploration and Production) for $1.02 billion.
Other asset sales in 2013 included Granite Wash Midstream Gas Services (to a subsidiary of MarkWest Energy Partners, for $252 million), and its interests in certain gathering system assets in Pennsylvania to Western Gas Partners, for $134 million.
Mergers and Acquisitions
In 2014 Chesapeake repurchased all of the outstanding preferred shares of its subsidiary CHK Utica, L.L.C. from third-party preferred shareholders for $1.25 billion.