Chesapeake Loses Less in 2016; Focus Changing from Gas to Oil

Chesapeake Energy, the second largest gas driller in the U.S. behind ExxonMobil, turned in its full year 2016 and fourth quarter 2016 update yesterday. On the accompanying quarterly earnings call, Chesapeake CEO Doug “the ax” Lawler took a bow for turning around a company that just a year ago seemed bound for bankruptcy court. Make no mistake–the company still has a long way to go. But they came a long way in 2016 and you have to give credit where credit is due. Let’s start with the top line numbers: In 2016 Chesapeake lost $4.9 billion, which seems like a lot. But compare that to 2015 when Chessy lost $14.9 billion and you can see the great strides that were made last year. In 4Q16 Chesapeake lost $741 million, down from losing $2.2 billion in 4Q15. One of the millstone’s hanging around the neck of the company was corporate raider Carl Ichan. He dumped most of his Chesapeake stock in 2016, at a considerable loss (see Carl Icahn Toadie Resigns from Chesapeake Energy Board). What about the Marcellus/Utica? Combined production from the M/U represented the single largest block of production in the Chesapeake portfolio–yet this year they will only operate two rigs in the northeast. The company has shifted its focus and strategy on drilling for oil instead of natural gas. In 2017 Lawler said the company will focus 60% of its drilling budget on oil. It means a much-scaled-back drilling program in the Marcellus/Utica region for Chesapeake, with an emphasis on completing already-drilled wells (see Chesapeake Energy 2017: Less New Drilling in M-U, More DUC Work). Below is Chessy’s update, a few select words about the M/U region uttered on yesterday’s earnings call, the latest PowerPoint slide deck, and a mish mash of analysis that we think you’ll find useful…

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