Asset Valuation of Chesapeake Energy

Asset Valuation of Chesapeake Energy

LandGate evaluated the asset value of Chesapeake Energy (“CHK”) after the company filed for Chapter 11 bankruptcy projection on June 28, 2020.

According to the press release provided by Chesapeake, the company “entered into a Restructuring Support Agreement (‘RSA’) with 100% of the lenders under its revolving credit facility, holders of approximately 87% of the obligations under its Term Loan Agreement, approximately 60% of its senior secured second lien notes due 2025, and approximately 27% of its senior unsecured notes, pursuant to which Chesapeake will implement a Chapter 11 plan of reorganization to eliminate approximately $7 billion of debt.”

LandGate analyzed the asset value of Chesapeake’s upstream oil and gas assets based on public data and average working interest assumptions by basin as reported in public documents. LandGate estimates Chesapeake’s asset value to be approximately $4.4 billion with a full detailed description of the evaluation and a downloadable reserve report in this blog. With a net debt of $9.5 billion, the net asset value of the company is approximately -$5.1 billion prior to the bankruptcy.

LandGate provides third party certified reserve reports and engineering services. Contact us for more information.

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LandGate is providing five reserve reports based on Chesapeake’s key operating areas split into the following areas:

  • Eagle Ford
  • Brazos Valley and Haynesville Shale
  • Mid-Continent
  • Marcellus
  • Powder River Basin, Permian, and other
Figure 1. Chesapeake’s Operating Areas (source: chk.com)
Figure 1. Chesapeake’s Operating Areas (source: chk.com)

Chesapeake’s Eagle Ford Assets

Asset Overview

LandGate estimates Chesapeake’s Eagle Ford August 2020 net cash flow to be $9,662,322 per month.

Chesapeake has 2,155 producing wells and 410 undeveloped locations classified as Proved Undeveloped in their Eagle Ford asset area. As of April 2020, the wells were producing 89,127 bbl/d oil and 367.0 MMcf/d gas at a gross level.

Forecasted 1P net reserves totaled 235.0 MMbbl Oil, 936.0 BCF, and 102.9 MMbbls NGLs. LandGate assumed an average working interest of 67% for Chesapeake’s Eagle Ford wells based on publicly available data.

Economic Results – Eagle Ford

Figure 4 below shows the estimated oil and gas reserves for PDP and PUD as well as future net revenue to Chesapeake Energy as of 08/01/2020 using the 6/30/2020 NYMEX futures.

Figure 4. Chesapeake’s Eagle Ford Reserve Report Summary
Figure 4. Chesapeake’s Eagle Ford Reserve Report Summary

The total asset value of Chesapeake’s Eagle Ford assets is estimated to be $1.2 billion.

Download the full reserve report and supporting files for Chesapeake’s EagleFord assets.

Chesapeake’s Brazos Valley and Haynesville Assets

Asset Overview

LandGate estimates Chesapeake’s Brazos and Haynesville assets August 2020 net cash flow to be $34,138,389 per month. Chesapeake has 1,586 producing wells and 140 undeveloped locations classified as PUD. As of March 2020, the wells were producing 31,250 bbl/d oil and 950.4 MMcf/d gas at a gross level.

Forecasted 1P net reserves totaled 82.3 MMbbl Oil, 2,447.6 BCF, and 285.3 MMbbls NGLs. LandGate assumed an average working interest of 89% for Cheaapeake’s Brazos Valley and Haynesville wells based on publicly available data.

Economic Results – Brazos Valley and Haynesville

Figure 7 below shows the estimated oil and gas reserves for PDP and PUD as well as future net revenue to Chesapeake Energy as of 08/01/2020 using the 6/30/2020 NYMEX futures.

Figure 7. Chesapeake’s Brazos and Haynesville Reserve Summary
Figure 7. Chesapeake’s Brazos and Haynesville Reserve Summary

The total asset value of Chesapeake’s Brazos and Haynesville assets is estimated to be $2.1 billion.

Download the full reserve report and supporting files for Chesapeake’s Brazos and Haynesville assets.

Chesapeake’s Mid-Continent Assets

Asset Overview

LandGate estimates Chesapeake’s Mid-Continent assets August 2020 net cash flow to be $1,674,410 per month. Chesapeake has 1,480 producing wells, 230 PUD locations and 210 Probable locations. As of January 2020, the wells were producing 6,684 bbl/d oil and 65.3 MMcf/d gas at a gross level.

Forecasted 1P net reserves totaled 50.0 MMbbl Oil, 353.5 BCF, and 39.6 MMbbls NGLs. LandGate assumed an average working interest of 39% for Chesapeake’s Mid-Continent wells based on publicly available data.

Economic Results – Mid-Continent

Figure 10 below shows the estimated oil and gas reserves for PDP, PUD, and Prob, as well as future net revenue to Chesapeake Energy as of 08/01/2020 using the 6/30/2020 NYMEX futures.

Figure 10. Chesapeake’s MidCon Reserve Summary
Figure 10. Chesapeake’s MidCon Reserve Summary

The total asset value of Chesapeake’s Mid-Continent assets is estimated to be $262.4 million.

Download the full reserve report and supporting files for Chesapeake’s Mid-Continent assets.

Chesapeake’s Marcellus Assets

Asset Overview

With gas prices below $2.00/Mcf, Chesapeake’s producing wells in the Marcellus region do not appear to be economical according to LandGate’s analysis. While the current cash flow is negative, as gas prices increase, the wells do recover profitable economics.

Chesapeake has 1,031 producing wells, 1978 PUD locations and about 50 Probable locations. As of April 2020, the wells were producing 712.1 MMcf/d gas at a gross level.

Forecasted 1P net reserves totaled 410 MMbbl Oil, 1,782.5 BCF, and 197.7 MMbbls NGLs. LandGate assumed an average working interest of 67.5% for Chesapeake’s Marcellus wells based on publicly available data.

Economic Results – Marcellus

Figure 13 below shows the estimated oil and gas reserves for PDP, PUD, and Prob, as well as future net revenue to Chesapeake Energy as of 08/01/2020 using the 6/30/2020 NYMEX futures.

Figure 13. Chesapeake’s Marcellus Reserve Summary
Figure 13. Chesapeake’s Marcellus Reserve Summary

The total asset value of Chesapeake’s Marcellus assets is estimated to be $348 million.

Download the full reserve report and supporting files for Chesapeake’s Marcellus assets

Chesapeake’s Powder River Basin and Other Assets

Asset Overview

LandGate estimates Chesapeake’s Powder River Basin and Other assets August 2020 net cash flow to be $10,896,094 per month. Chesapeake has 351 producing wells, 21 drilled uncompleted wells (PDNP), 228 PUD locations and over 60 Probable locations. As of April 2020, the wells were producing 23,110 bbl/d oil and 119.6 MMcf/d gas at a gross level.

Forecasted 1P net reserves totaled 96.4 MMbbl Oil, 443.3 BCF, and 45.9 MMbbls NGLs. LandGate assumed an average working interest of 78% for Chesapeake’s Powder River Basin and other wells based on publicly available data.

Economic Results – Powder River Basin and Other

Figure 16 below shows the estimated oil and gas reserves for PDP, PUD, and Prob, as well as future net revenue to Chesapeake Energy as of 08/01/2020 using the 6/30/2020 NYMEX futures.

Figure 16. Chesapeake’s Powder River Basin and Other Reserve Summary
Figure 16. Chesapeake’s Powder River Basin and Other Reserve Summary

The total asset value of Chesapeake’s Powder River and Other assets is estimated to be $534 million.

Download the full reserve report and supporting files for Chesapeake’s Powder River Basin and Other assets.

Conclusion

Price Deck (NYMEX WTI CL 06-30-20; Henry Hub NG 06-30-20)
Figure 17. Price Deck (NYMEX WTI CL 06-30-20; Henry Hub NG 06-30-20)

Chesapeake’s bankruptcy and restructuring was inevitable as their assets could not generate enough value to overcome their debt burden. Should Chesapeake consider divesting, their core asset areas will make attractive acquisitions for companies seeking assets in the current market. Midstream contracts and liabilities will be key concerns for buyers.

LandGate is a data intelligence platform and marketplace for land resources. LandGate provides valuation research for its clients as well as software tools for buyers of oil and gas and other property rights.

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Website Terms and Conditions Apply. Nothing in this Blog or LandGate Website constitutes legal or investment advice. LandGate Website and Blog contain data and information obtained from public data, third parties, and internal company analysis of such data and information. LandGate has not independently verified the data and information obtained from these sources. All market data contained within LandGate website should be considered as a reference only and not as validation against. Forward-looking information obtained from these sources is subject to the same qualifications noted above. The contents of the site may contain forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates, and projections about the oil and gas industry, the economy, or its investments. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. Furthermore, LandGate undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

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