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Chesapeake: Rig count to be lower in 2H

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Chesapeake Energy Corp. reported on Aug. 1 GAAP income of $457 million for the second quarter of 2013, or $0.66/share, down from $929 million, or $1.29 per share in the second quarter of 2012.

Adjusted for special items, net income came to $388 million for the second quarter 2013, or $0.51/diluted share, compared with $46 million or $0.06/diluted share in the second quarter 2012.

Year-ago income was higher due primarily to a gain from one-time asset sales.

Total second-quarter production was up 7 percent year over year, at 4.1 billion cubic feet of natural gas equivalent, or Bcfe, per day, and oil production was up 44 percent year over year, at 116,000 barrels, or bbls. per day.

The company's average daily production consisted of approximately 3.1 bcf of natural gas and approximately 168,000 bbls of liquids, comprised of approximately 116,000 bbls of oil and approximately 52,000 bbls of natural gas liquids, or NGLs.

Liquids accounted for 25 percent of total production during the 2013 second quarter, up from 21 percent during the 2012 second quarter.

During the second half of 2013, Chesapeake plans to operate an average of 64 rigs compared to an average of 81 rigs during the first half of the year.

The company also plans to complete approximately 20 percent fewer wells in the second half of 2013 compared to the first half of the year. Based on these planned activity levels, the company is reducing its 2013 full-year guidance for drilling and completion costs from a range of $5.75 – $6.25 billion to $5.7 – $6.0 billion.

Oil production is expected to be up and NGL production down for the year compared with previous guidance.

"We are raising our full-year 2013 oil production guidance by 1 million barrels to 38 – 40 mmbbls, representing a growth rate of 22 to 28 percent year over year, due to good well performance, an accelerated pace of well completions in the Eagle Ford Shale and timing of asset sales," said Steve Dixon, Chesapeake's Chief Operating Officer. "We are also reducing our 2013 NGL production guidance by 2 mmbbls to 21 – 23 mmbbls to reflect ethane rejection that occurred during the second quarter and thus far in the third quarter as well as anticipated delays associated with third-party gathering, compression and processing in the Utica Shale."

The company said it continues to make progress in selling noncore assets, as previously committed to improve its financial position.

During the first half of 2013, the company received proceeds of approximately $2.4 billion from asset sales. So far during the 2013 third quarter, the company has completed the sales of additional assets in the Haynesville Shale and Eagle Ford Shale to subsidiaries for total consideration of approximately $1 billion and expects to complete the sale of midstream assets in the Mississippi Lime for total consideration of approximately $300 million.

It also is pursuing several other transactions that may reach completion before the end of 2013.

In an update on activity in various plays, the company said its production from the Marcellus Shale in Pennsylvania and West Virginia continues to grow, benefiting from the availability of new takeaway capacity and the completion of wells in backlog.

Chesapeake connected 131 wells to sales during the 2013 second quarter, which was substantially more than the 52 wells connected during the 2013 first quarter. Approximately 2 percent of the company's Marcellus production during the 2013 second quarter was oil, 3 percent was NGLs and 95 percent was natural gas.

During the 2013 second quarter, Chesapeake's average daily net production in the southern wet-gas portion of the Marcellus that includes its West Virginia operations was approximately 208 mmcfe per day, or 355 gross operated mmcfe per day, an increase of 56 percent year over year and 23 percent sequentially. The average peak daily production rate of the 52 wells that commenced first production during the 2013 second quarter in the southern Marcellus was approximately 6.5 mmcfe per day.

Chesapeake currently is operating three rigs in the southern wet-gas portion of the play, which it plans to reduce to two rigs by year end. Average spud-to-spud cycle time during the 2013 second quarter was 21 days, down from 33 days a year ago. As of June 30, 2013, Chesapeake had an inventory of 76 drilled but uncompleted or unconnected wells in the southern Marcellus.

The full earnings release may be found on the company's website.

Chesapeake shares are traded on the New York Stock Exchange under the symbol CHK.