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Trio of big oil, gas producers highlight silver linings in their Q1 storm

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


Trio of big oil, gas producers highlight silver linings in their Q1 storm

Thefirst quarter was brutal for several large independent U.S. oil and gasproducers, but the leadership of AnadarkoPetroleum Corp., ChesapeakeEnergy Corp. and ApacheCorp. see better results ahead as they scramble to cut costs andgain access to capital.

Houston-basedApache reported a loss of $489 million, which it said included noncash,after-tax write-downs of $325 million caused primarily by low oil and gasprices. The company said it still plans to be cash-flow-neutral for the yearunder a budget that assumes $35-per-barrel crude oil and $2.35/Mcf gas.

"Asexpected, we were not cash-flow-neutral in the first quarter. However, we doanticipate generating a net cash flow surplus through the remainder of theyear," CEO John Christmann IV said on the company's first-quarter earningscall. "As such, we remain on track for unchanged or lower net debt levelsat year-end."

Apachehas targeted much of its North American production budget at the Permian Basin,where it produced 171,000 barrels of oil equivalent per day during the firstquarter, a 2% drop from the fourth quarter of 2015. Christmann credited thesmallness of this drop in production, as well as improvements in other areas,to "remarkable progress on drilling efficiencies."

"Inkey areas of North America where Apache was actively drilling during the firstquarter, the average drilled and completed well costs were down approximately45% as compared to average well costs in 2014," he said.

Anadarko,based in The Woodlands, Texas, reported a net loss of $1.03 billion for thefirst quarter, but CEO Al Walker took an optimistic tone when discussing thecompany's quarterly outcome.

"Thevery fragile energy capital markets we've seen for most of the first quarterappear to be stabilizing; the outlook for commodity prices are improving; and Ithink for industry, our operating environment is definitely strengthening,"he said.

Anadarkosaid it reduced its capital plan by 50% from 2015 and 70% from 2014 but expectsoil production volumes to be flat year over year. Walker said the companystabilized its financial situation during the quarter in spite of pricesremaining low.

"Wemonetized $1.3 billion of assets, with another $700 million expected in thesecond quarter. We will continue to be an industry leader in active portfoliomanagement," he said. "We reduced our dividend 81%, which we believewill save us $450 million of cash per annum, and we positioned our company tobe more successful financially and operationally in the years ahead if pricesstay lower. Our savings from these efforts, we believe, will increase ourability to be more cost-efficient and should provide more than $350 million ofcosts in savings per annum."

OklahomaCity's Chesapeake, which has been struggling with debt issues, announced a $964million loss for the quarter, which it blamed largely on the low-price environment.Included in the net loss was a noncash impairment of $853 million.

DuringChesapeake's first-quarter earnings call, CEO Doug Lawler announced that thecompany is selling its acreage in the STACK play of Oklahoma to for$470 million as it continues to shape up its balance sheet. The company'schanges are far from done, he said.

"Wecontinue to focus on improving our margins not only by addressing the cost sideof our business but also working to reduce our operational leverage inmidstream commitments. Our operating and [general and administrative] costscontinue to fall, and together we're 28% lower in the first quarter on aper-barrel-of-oil-equivalent basis compared to the first quarter of 2015,"he said. "We intend to further expand our margins through continueddiscussions with our midstream and downstream partners on several funds to findmutually beneficial solutions that will increase EBITDA. … With the potentialfor additional debt exchanges, open market repurchases and the capability toissue additional secured debt, in addition to our sufficient liquidity, we haveseveral tools … at our disposal to handle our 2017 maturity obligations."