Dear Fellow Shareholders,
I
n 2016, Chesapeake made significant progress in strengthen-
production expense per boe and lowest finding and develop-
ing our financial position and improving our operational efficien-
ment costs across our peer group in 2016.
cies, thanks to the commitment of our outstanding employees
and the competitive advantages within our assets. While the low
In 2016 we continued to optimize our gathering, processing
commodity price environment remains a challenge, we continue
and transportation expenses and future commitments, resulting
to make improvements and drive value across every aspect of
in a reduction of $264 million in these expenses compared to 2015. By divesting our Barnett Shale asset, we
our business. Operating responsibly is a top priority, and as a result of our environmental, health and safety efforts, our worksites were safer in 2016. We are extremely proud of our employees for minimizing our environmental footprint, reducing motor vehicle incidents by 22% and reducing our Total Recordable Incident Rate (TRIR) by 25% over 2015. The strength of Chesapeake’s portfolio continues to grow as we capture efficiencies and develop new ways to leverage our technology to increase the value of our assets. By the end of 2016, our portfolio contained approximately 5,600 loca-
2016 PERFORMANCE HIGHLIGHTS
eliminated $200 – $300 million of annual mid-
$11.3B
2019. Since 2014 we have achieved gathering,
stream commitments impacting EBITDA through processing and transportation commitment re-
Reduction in total leverage since 2012
ductions totaling approximately $7 billion, with
$331M
than $500 million.
Annual savings in LOE and G&A expenses
25%
additional reductions expected in 2017 of more
While we are pleased with the tremendous progress made in 2016, we have more work to do. We are committed to removing an additional $2 – $3 billion of debt. We are targeting a return
Improvement in TRIR
to profitable and efficient growth, highlighted by a 10% exit-to-exit oil growth rate from the fourth quarter 2016 to the fourth quarter 2017 and an
tions with a rate of return above 40%, at a specified price deck of $3 per mcf for natural gas and $60 per barrel for
additional 20% exit-to-exit oil growth rate from the fourth quarter
oil. During 2016, we drilled laterals of 10,000 – 15,000 feet in three
2017 to the fourth quarter 2018. Reducing debt and increasing
of our operating areas, creating faster payouts and improved cap-
oil production, combined with our employees’ tireless drive to
ital efficiencies.
lower cash costs, will enable us to reach an important financial goal — cash flow neutrality — which is achievable in 2018.
Between September 2015 and the end of January 2017, we delivered on our commitment to improve our financial health by
With six major assets offering significant growth potential and
eliminating approximately $4.0 billion of leverage from our capital
providing product and geographic diversity, we have great confi-
structure, including a reduction in both debt and preferred stock
dence in the competitiveness of our portfolio. Chesapeake’s lead-
obligations. The reaffirmation of our revolving credit facility in April
ership team and our talented employees remain driven to create
2016 was a significant achievement, as were the numerous trans-
differential performance and long-term shareholder value while
actions that addressed our near-term debt maturities, which fur-
maintaining our outstanding environmental, health and safety
ther enhanced our liquidity. We also divested approximately $2.3
record. Thank you for your investment in Chesapeake.
billion of noncore, non-operated or low-return assets, surpassing our goal of $2.0 billion. Combined with similar transactions, these efforts helped reduce our total leverage by more than 50%, or $11.3 billion, between 2012 and January 2017. Our focus on capital efficiencies resulted in cost improvements
R. Brad Martin
across our operating areas and helped us maintain production
Chairman of the Board
comparable to 2015 despite a capital budget that was roughly half of our 2015 investment. Our employees further reduced our cash costs in lease operating expenses (LOE) and G&A, resulting in savings of $331 million from 2015. Additionally, our relentless
Robert D. Lawler
focus on cash costs and capital efficiencies delivered the lowest
President, Chief Executive Officer and Director