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The Reasons for Chesapeake’s Oil Growth Forecast in 2017

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Chesapeake’s 2017 capex guidance

Chesapeake Energy (CHK) has provided 2017 capex guidance of $1.9 billion–$2.5 billion, which represents a 30% YoY (year-over-year) rise. Chesapeake’s 2017 capex is skewed towards its oil-generating assets, such as the Eagle Ford play. Its total capex in oil (USO) (DBO) assets is expected to be 60% of its total capex. Combined, the Haynesville and Eagle Ford plays will account for 50% of the company’s total 2017 capex.

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Chesapeake’s higher investment in its oil assets explains its oil growth expectation in 2017. Between 4Q16 and 4Q17, Chesapeake expects its exit-to-exit total production to rise ~7%, adjusted for asset sales. Its exit-to-exit oil production is expected to be ~10% higher. Chesapeake has projected a rise of 15% in its total production between 4Q17 and 4Q18, driven by a 20% rise in its oil production.

Drilling activity in 2017

In 2017, Chesapeake plans to operate an average of 17 rigs, compared with an average of ten rigs in 2016. Chesapeake plans to spud ~400 wells and to place 450 in production in 2017, compared with 213 and 428 wells, respectively, in 2016.

Referring to Chesapeake’s capex plans and the future, in a press release, CEO Doug Lawler stated that “the execution of our 2017 capital program will position Chesapeake for significant production and earnings growth and cash flow neutrality in 2018.” For information on how Chesapeake performed in 4Q16 and fiscal 2016, read Natural Gas’s Gains Failed to Lift Chesapeake’s 4Q16 Earnings.

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