Chesapeake Energy Corporation CHK became the latest among a string of oil companies to cut its capital expenditure for 2015 and related drilling activity in an attempt to counter the tumbling oil prices.
Chesapeake has lowered its capital budget by $500 million to $3.5–$4.0 billion (including capitalized interest of $500 million) from its earlier guidance of $4.0–$4.5 billion.
In 2015, the company intends to operate 25–35 rigs, down approximately 55% from an average of 64 rigs employed in 2014. Chesapeake plans to spud and connect to sales about 520 and 650 gross operated wells, respectively in 2015. This represents a massive decline from 1,175 and 1,150 wells, respectively in 2014.
Consequently, Chesapeake is reducing its 2015 targeted production to 231–236 million barrels of oil equivalent, or an average daily production of 635–645 thousand barrels of oil equivalent. This signifies a production growth of 1–3% –, after adjusting for the 2014 asset sales – from that in the previous year.
The company entered 2015 with a strong liquidity position. It proposes to use the cash cautiously and intends to end 2015 with a sum of about $6 billion in combined cash and borrowing capacity under its credit facility. The revised budget is anticipated to make the company free cash flow neutral by the end of 2015.
Chesapeake is an independent oil and gas company engaged in the acquisition, development, and production of onshore U.S. natural gas resources. The company has grown rapidly and is now the second largest natural gas producer in the U.S. It is also the tenth largest producer of oil and natural gas liquids in the nation.
Chesapeake is also noted for its growth through acquisitions. Additionally, the company has demonstrated considerable drilling prowess, capitalizing on its extensive inventory of acquired undeveloped acreage to make substantial reserve additions.
Chesapeake currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks from the oil and gas sector include Valero Energy Partners L.P. VLP, Western Gas Equity Partners, L.P WGP and Hallador Energy Company HNRG. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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