Chesapeake Energy Corporation (NYSE:CHK) today announced it has
finalized new gas gathering agreements with the Williams Companies
(NYSE:WMB) in its Haynesville Shale operating area located in northwest
Louisiana and its dry gas Utica Shale operating area located in eastern
Ohio. Key attributes include:
-
Significant improvement in per unit gathering rates established
in two major growth assets beginning in 2016, leading to enhanced
volume growth
-
Combination of gathering system agreements allows Chesapeake to
satisfy minimum volume commitment (MVC) obligations in Haynesville
Shale, increasing realized pricing per mcf of gas
-
Aligned strategic interests improve drilling economics,
operational efficiency and midstream asset utilization
Doug Lawler, Chesapeake’s Chief Executive Officer, commented,
“Chesapeake’s operating efficiencies across the entire portfolio over
the last two years have resulted in lower costs, higher production rates
and higher recovery rates. Our improved performance in the Haynesville
is the primary reason that we were able to negotiate new gathering
rates. These agreements will result in lower gathering rates and lower
differentials, making these assets even more competitive within our
portfolio. In this capital constrained environment, we will benefit from
these higher-return assets and expect to allocate incremental capital to
these areas, while enabling Williams to more fully utilize its gathering
systems. The commercial solution these new contracts provide will only
enhance what we have already achieved with our operating performance.
This is truly a win-win for both companies, and we continue to work with
Williams to further enhance the value of our respective assets.”
Chesapeake will move to a fixed-fee agreement in the Haynesville Shale
beginning in January 2016. Gas gathering fees in the Haynesville will be
reduced on a unit basis, and the existing minimum volume obligations are
expected to be met with the consolidation of two gathering systems and a
projected increase in Haynesville area volumes. Inclusive of previously
expected MVC shortfall payments, the company’s gas production is
expected to see improved gathering rates of approximately $0.20 per mcf
in 2016 and 2017 and approximately $0.30 per mcf in 2018 and beyond. As
part of the transaction, and consistent with Chesapeake’s current
operating plans, the company committed to turn 140 equivalent wells
online before the end of 2017. This commitment is projected to result in
significant production growth in the Haynesville Shale asset over the
next two years, thus also increasing Williams’ revenue from the area.
Chesapeake will also move to a fixed-fee agreement in the dry gas Utica
Shale, beginning in January 2016, and is expected to see an estimated
gathering rate reduction of approximately $0.25 per mmbtu. As part of
the transaction, Chesapeake is dedicating an additional 50,000 net acres
to Williams and will be subject to a new minimum volume commitment of
250 mmbtu per day beginning in mid-2017. The company expects to meet
this commitment with approximately one rig per year.
Chesapeake Energy Corporation (NYSE:CHK) is the second-largest
producer of natural gas and the 11th largest producer of oil and natural
gas liquids in the U.S. Headquartered in Oklahoma City, the company’s
operations are focused on discovering and developing its large and
geographically diverse resource base of unconventional oil and natural
gas assets onshore in the U.S. The company also owns substantial
marketing and compression businesses. Further information is available
at www.chk.com
where Chesapeake routinely posts announcements, updates, events,
investor information, presentations and news releases.
This news release includes “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. Forward-looking statements are
statements other than statements of historical fact. They include
statements that give our current expectations or forecasts of future
events, production, production growth and well connection forecasts,
estimates of operating costs, planned development drilling and expected
drilling cost reductions, capital expenditures, expected efficiency
gains and the effect on the unrecognized value of our assets,
anticipated assets sales and proceeds to be received therefrom,
projected cash flow and liquidity, business strategy and other
opportunities, plans and objectives for future operations (including
joint venture and participation agreements), and the assumptions on
which such statements are based. Although we believe the expectations
and forecasts reflected in the forward-looking statements are
reasonable, we can give no assurance they will prove to have been
correct. They can be affected by inaccurate or changed assumptions or by
known or unknown risks and uncertainties.
Factors that could cause actual results to differ materially from
expected results include those described under “Risk Factors” in Item 1A
of our annual report on Form 10-K and any updates to those factors set
forth in Chesapeake’s quarterly report on Form 10-Q filed on August 5,
2015, or current reports on Form 8-K (available at http://www.chk.com/investors/sec-filings).
These risk factors include the volatility of oil, natural gas and NGL
prices; write-downs of our oil and natural gas carrying values due to
declines in prices; the availability of operating cash flow and other
funds to finance reserve replacement costs; our ability to replace
reserves and sustain production; uncertainties inherent in estimating
quantities of oil, natural gas and NGL reserves and projecting future
rates of production and the amount and timing of development
expenditures; our ability to generate profits or achieve targeted
results in drilling and well operations; leasehold terms expiring before
production can be established; commodity derivative activities resulting
in lower prices realized on oil, natural gas and NGL sales; the need to
secure derivative liabilities and the inability of counterparties to
satisfy their obligations; adverse developments or losses from pending
or future litigation and regulatory proceedings, including royalty
claims; the limitations our level of indebtedness may have on our
financial flexibility; charges incurred in response to market conditions
and in connection with actions to reduce financial leverage and
complexity; drilling and operating risks and resulting liabilities;
effects of environmental protection laws and regulation on our business;
legislative and regulatory initiatives further regulating hydraulic
fracturing; our need to secure adequate supplies of water for our
drilling operations and to dispose of or recycle the water used; federal
and state tax proposals affecting our industry; potential OTC
derivatives regulation limiting our ability to hedge against commodity
price fluctuations; impacts of potential legislative and regulatory
actions addressing climate change; competition in the oil and gas
exploration and production industry; a deterioration in general
economic, business or industry conditions; negative public perceptions
of our industry; limited control over properties we do not operate;
pipeline and gathering system capacity constraints and transportation
interruptions; cyber attacks adversely impacting our operations; and
interruption in operations at our headquarters due to a catastrophic
event.
In addition, disclosures concerning the estimated contribution of
derivative contracts to our future results of operations are based upon
market information as of a specific date. These market prices are
subject to significant volatility. Our production forecasts are also
dependent upon many assumptions, including estimates of production
decline rates from existing wells and the outcome of future drilling
activity. Expected asset sales may not be completed in the time frame
anticipated or at all. We caution you not to place undue reliance on our
forward-looking statements, which speak only as of the date of this news
release, and we undertake no obligation to update any of the information
provided in this release or the accompanying Outlook, except as required
by applicable law.
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