Chesapeake Energy Corp., Oklahoma City, plans to drill and in turn in line 185-235 wells this year across its holdings in the Marcellus, Haynesville, and Eagle Ford regions. Those expansion plans will help push the company’s total production to 670,000-690,000 boe/d from the 539,000 average (85% gas) in fourth-quarter 2021.
The operator will devote $1.5-1.8 billion to capital spending projects in 2022, more than doubling its 2021 budget and up from executives’ initial guidance of $1.3-1.6 billion in December. The company, which emerged from bankruptcy reorganization a little more than a year ago, also is ramping up its dividend program and plans to begin buying back some of its stock in the near future.
“In 12 short months, we have strengthened Chesapeake’s portfolio, clarified our strategy and focused our capital and talented team on our highest-return assets,” said Nick Dell’Osso, president and chief executive officer in a statement. “We remain committed to disciplined investments […] to maximize adjusted free cash flow, allowing us to return significant cash to shareholders through dividends, share repurchases, and debt reduction.”
Dell’Osso and his team in November closed on their purchase of Vine Energy Inc. and plan to wrap up their acquisitions of Chief E&D Holdings LP and parts of Tug Hill Inc. by the end of March (OGJ Online, Jan. 25, 2022). At that point, the company will lift its base quarterly dividend to 50 cents/share from 43.75 cents. In the meantime, Chesapeake also will pay investors a variable dividend of $1.33/share next month after generating adjusted cash flow of $372 million in the fourth quarter.
The capital distribution plans by Dell’Osso and the Chesapeake board—which imply a 13% current yield based on today’s markets—were the main focus of the company’s Feb. 24 conference call with analysts. Pressed on why the company isn’t planning to be more aggressive in buying back its shares versus looking to pay out more than $5 billion in dividends over the next 5 years, Dell’Osso said his team is eager to get rolling on its $1 billion buyback authorization—regulatory restrictions around the Chief-Tug Hill deal are putting purchases on hold for now—but also said Chesapeake is “pretty committed” to the all-of-the-above approach. But, he added, he’s willing to pivot toward a more aggressive buyback if Chesapeake’s stock price remains at what his team thinks at undervalued levels.
Chesapeake produced a net profit of more than $1.4 billion in the fourth quarter on revenues of $3.1 billion. Its gross margins per barrel equivalent during the quarter rose to $24.86 in the Marcellus (from $5.91 in late 2020), $26.29 in the Haynesville (versus $5.54), and $39.33 in the Eagle Ford (up from 15.57).