A must-know overview of Chesapeake’s business segments

Market Realist

A key overview of Chesapeake and its second quarter 2014 earnings (Part 2 of 8)

(Continued from Part 1)

Chesapeake’s business segments

As you saw in the previous part of this series, Chesapeake’s (CHK) business is divided into two operating segments—the Southern Division and the Northern Division.

Southern division

CHK’s Southern division is divided into four major regions—the Eagle Ford, Haynesville, Barnett, and Mid-Continent regions. As the table above shows, the Eagle Ford and the Mid-Continent regions account for almost one-third of the production from this division as per 2Q 2014 earnings.

The Mid-Continent region focuses on the Mississippi Lime and Granite Wash plays. The production mix in this region is largely natural gas (47%), followed by oil (33%) and natural gas liquids (20%). The company is estimated to spend approximately 20% of its capital expenditure in this region.

The Eagle Ford production mix consists mostly of oil (64%). With an estimated capex of ~35% of the total for 2014, the Eagle Ford will receive more than what is being spent on any region.

Other companies that are betting big on the Eagle Ford Shale include EOG Resources (EOG), Pioneer Natural Resources (PXD), and Kinder Morgan Inc. (KMI). All these companies are components of the Energy Select Sector SPDR ETF (XLE).

While the Eagle Ford and Mid-continent have a production mix that includes oil, natural gas, and natural gas liquids (or NGLs), the Haynesville and Barnett regions are largely gas-only producing regions.

Northern division

The Northern division is divided into four regions—the Utica, Rockies, Marcellus North, and Marcellus South regions.

As the table above notes, the majority of the production comes from the Utica and Marcellus regions.

CHK has a significant acreage position in the Utica play at 1 million net acres. CHK produced mostly gas from this region (60%) followed by oil (10%) and NGLs (30%) in 2Q 2014.

The Northern Marcellus is a gas-only-producing region, while the Southern Marcellus largely produced natural gas (57%) and NGLs (34%) in 2Q 2014.

CHK recently acquired a significant acreage position in the Powder River Basin in the Niobrara Formation (the Rockies). During the 2014 second quarter, Chesapeake operated an average of three rigs. It intends to add more rigs in the region during the 2015 first quarter, with an expectation to average approximately seven to nine rigs drilling through 2015.

Capital spending in key regions

Chesapeake plans to spend the majority of its capital in the Eagle Ford, Mid-Continent, and Northern Marcellus in 2014.

The following parts of this series take a look at why CHK is increasing its focus on these regions.

Continue to Part 3

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