Chesapeake Energy 2013 Annual Report Download - page 47

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Overview
For an overview of our business and strategy, please see Our Business and Business Strategy in Item 1 of this
report.
We own interests in approximately 46,800 natural gas and oil wells that produced approximately 665 mboe per
day in the 2013 fourth quarter, net to our interest. Our 2013 production of 244 mmboe consisted of 1.095 tcf of natural
gas (75% on an oil equivalent basis), 41 mmbbls of oil (17% on an oil equivalent basis) and 21 mmbbls of NGL (8%
on an oil equivalent basis). Liquids represented 25% of total production for 2013, up from 20% in 2012. Our daily
production for 2013 averaged approximately 670 mboe, an increase of 3% from 2012. Compared to 2012, our natural
gas production in 2013 decreased by 3%, or 85 mmcf per day; our oil production increased by 32%, or approximately
27,200 bbls per day; and our NGL production increased by 19%, or approximately 9,100 bbls per day.
In 2013, we operated an average of 71 rigs, a decrease of 60 rigs compared to 2012, and invested approximately
$5.5 billion in drilling and completion costs compared to approximately $8.8 billion in 2012. Drilling and completion
costs were lower in 2013 than in 2012 as Chesapeake drilled and completed fewer wells. In addition, our capital
efficiency improvements in 2013 became more evident as we continued to drive well costs down.
Net expenditures for the acquisition of unproved properties were approximately $205 million during 2013 compared
to approximately $1.7 billion in 2012. Through 2012, the Company invested heavily in unproved properties and now
holds a substantial inventory of resources that provides a foundation for future growth. Other capital expenditures were
approximately $1.0 billion during 2013 compared to approximately $3.4 billion during 2012. The reduction in other
capital expenditures in 2013 from 2012 is primarily the result of our sale of substantially all of our midstream business
and most of our gathering assets in 2012 and 2013 and a reduction in capital expenditures for our oilfield services
business.
Based on planned activity levels for 2014, we project that 2014 total capital expenditures will be $5.2 - $5.6 billion,
an approximate 20% decrease from $6.8 billion of total capital expenditures in 2013.
Divestitures
An essential part of our business strategy in 2013 was using the proceeds from divestitures to fund the spending
gap between cash flow from operations and our capital expenditures, to reduce financial leverage and complexity and
further enhance our liquidity. In 2013, we generated aggregate net proceeds of approximately $4.4 billion from the sale
of natural gas and oil properties, midstream and other assets that we deemed were noncore or did not fit in our long-
term plans and through our entry into a strategic joint venture.
We will continue to pursue opportunities to high-grade our portfolio to focus on assets that best fit our strategy
of profitable growth from captured resources with sales that we believe will be value accretive and enable us to further
reduce financial complexity and lower overall leverage, but our 2014 capital budget is not dependent on divestitures.
On February 24, 2014, we announced that we are pursuing strategic alternatives for our oilfield services business,
COS, including a potential spin-off to Chesapeake shareholders or an outright sale. See Oilfield Services in Item I of
this report for a further description of our oilfield services business. In addition, in January 2014 we received $209
million of net proceeds from the sale of our common equity ownership in Chaparral Energy, Inc. Also, in connection
with certain assets sales in 2012 and 2013, we believe that we will receive proceeds in excess of $150 million in 2014
that were held back for title review and other purposes at the time of closing (see Haynesville and Eagle Ford divestitures
and Mississippi Lime joint venture below). Currently, we are marketing or currently have under contract certain real
estate and other non-E&P assets, excluding COS, that are expected to generate proceeds of more than $650 million
during 2014. Together, the items listed above and excluding any proceeds we may receive from a COS transaction,
are expected to generate proceeds of approximately $1 billion, and we believe the sale of these assets will have minimal
impact on our 2014 operating cash flow guidance.
Major 2013 Natural Gas and Oil Property Sales
In November 2013, we sold a wholly owned subsidiary, MKR Holdings, L.L.C. (MKR), to Chief Oil and Gas and
two of its working interest partners, Enerplus and Tug Hill. Net proceeds from the transaction were approximately $490
million. MKR held producing wells and undeveloped acreage in the Marcellus Shale in Bradford, Lycoming, Sullivan,
Susquehanna and Wyoming counties, Pennsylvania.