Why did Chesapeake’s 3Q13 spending come in under budget?
Third quarter spending came in under budget
Chesapeake management noted that spending on drilling and completing wells was ~$1.25 billion in 3Q13—about $180 million less than budgeted, and $350 million down from 2Q13. Also, CHK’s spending on new leasehold (which represents the money it spends to acquire rights to land for future drilling) was ~$45 million in 3Q13, or ~$50 million under budget.
Interested in CHK? Don't miss the next report.
Receive e-mail alerts for new research on CHK
Why Chesapeake spent less than expected
Management noted that this was partially due to fewer wells drilled and completed during the period. However, production guidance was not lowered, despite the lower spend. Plus, management stated that CHK is beginning to experience capital efficiencies and lower average well costs due to improved operating performance.
Progress in Eagle Ford is a major driver of efficiencies
Specifically, management cited activity in the Eagle Ford play in South Texas, where it’s shifting activity from single-well pads towards multi-well pads. Multi-well pads allow companies to drill more than one well from a single location, which is generally more cost-effective, as only one site has to be prepared for drilling, with the production benefit of multiple wells.
Chesapeake stated that in 1H13, ~65% of its Eagle Ford wells were on single-well patches. The figure hit 40% in 3Q13 and it’s expected to decline to 25% in 4Q13 and 15% or lower next year. This signals a continued ability to realize operational efficiencies into the future.
The company commented on its 3Q13 earnings call that it has lowered guidance for 2013 capital expenditures, which we’ll discuss in the next part of this series.