Chesapeake Energy Corporation reported fourth quarter and full-year 2021 results and updated 2022 guidance.
2021 Fourth Quarter Highlights:
Net cash provided by operating activities of $563 million; unrestricted cash balance of $905 million
Net income of approximately $1.4 billion, or $11.13 per diluted share; adjusted net income(1) of $308 million, or $2.39 per diluted share
Adjusted EBITDAX(1) of $687 million; adjusted free cash flow(1) of $372 million
Quarterly dividend of $1.7675 per common share, consisting of the first quarterly variable dividend of $1.33 per common share and a quarterly base dividend of $0.4375 per common share, payable on March 22, 2022 to shareholders of record at the close of business on March 7, 2022
2021 Full-Year Highlights:
Refocused and high-graded asset portfolio, expanding highest-return assets in the Marcellus and Haynesville through two major acquisitions and divesting Powder River Basin asset
Announced $1 billion common stock and warrant repurchase program expected to be executed by year end 2023
Proved reserves of approximately 1.6 billion barrels of oil equivalent (boe) at year end 2021; standardized measure of discounted future net cash flows of approximately $12.3 billion
Generated over $1.2 billion in adjusted free cash flow
Established base and variable dividend programs; increased base dividend by 27% in 2021
2022 Guidance Highlights:
Increased 2022 adjusted EBITDAX guidance to $3.8 $4.0 billion (previous range $3.4 $3.6 billion) with no change in capital spending
Expected to generate approximately $1.9 $2.1 billion in adjusted free cash flow in 2022 and greater than $9 billion in adjusted free cash flow over the next five years
Anticipate paying between $900 million $1.1 billion (approximately 13% current yield, based on current stock price) in total dividends in 2022 and greater than $5 billion over the next five years
Strong balance sheet with net debt(1)-to-2022E EBITDAX ratio of approximately 0.7x, pro forma for Chief and Powder River Basin cash consideration
Nick Dell'Osso, Chesapeake's President and Chief Executive Officer, said, "In 12 short months, we have strengthened Chesapeake's portfolio, clarified our strategy and focused our capital and talented team on our highest return assets. We have demonstrated the strength and sustainable cash generating capability of the company, delivering over $1.2 billion in adjusted free cash flow. We have established a clear dividend framework which we anticipate will return approximately $1 billion in cash to shareholders in 2022, in addition to our $1 billion share repurchase program through the end of 2023. We have also enhanced our commitment to ESG excellence, improving our emissions profile, safely executing our business and firmly establishing the company as a leader in achieving independent certification of our natural gas production. We remain committed to disciplined investments in our highest return opportunities to maximize adjusted free cash flow, allowing us to return significant cash to shareholders through dividends, share repurchases, and debt reduction. We look forward to the continued integration of the Vine assets while also closing and integrating our assets from Chief in the first quarter. We will continue to improve our cost structure, maintain balance sheet strength, and responsibly produce the reliable, affordable, and lower carbon energy the world desperately needs."
First Variable Dividend Payable Beginning March 2022; Base Dividend Increase Payable in June 2022
During the fourth quarter of 2021, Chesapeake generated $563 million of operating cash flow and ended the quarter with $905 million of cash on hand. Consistent with the company's commitment to returning cash to shareholders, Chesapeake will pay its first variable dividend, along with its base dividend, on March 22, 2022 to shareholders of record at the close of business on March 7, 2022. The total common stock dividend, including the variable and base components, is calculated as follows:
Upon the anticipated closing of the transaction with Chief E&D Holdings, LP and affiliates of Tug Hill, Inc. in late March 2022, the company expects its base dividend to increase from $0.4375 per share to $0.50 per share, payable in June 2022.
Chesapeake's net production rate in the fourth quarter of 2021 was approximately 539,000 boe per day (approximately 85% natural gas and 15% total liquids), utilizing an average of 9 rigs to drill 32 wells and place 35 wells on production. For the full year 2021, the company produced approximately 462,000 boe per day, utilizing an average of 7 rigs to drill 122 wells and place 130 wells on production. Currently, Chesapeake is operating 11 rigs including two in the Marcellus, six in the Haynesville, and three in the Eagle Ford, and the company expects to drill 40 to 50 wells and place 40 to 50 wells on production in the first quarter of 2022.
On November 1, 2021, Chesapeake completed its previously announced acquisition of Vine Energy Inc. and the integration process of that asset is proceeding as planned, with the company on target to achieve its forecasted $50 million in initial synergies by the end of 2022. Additionally, the previously announced sale of the Powder River Basin asset and the acquisition of Chief E&D Holdings, LP and affiliates of Tug Hill, Inc. are proceeding as planned and remain on schedule to be closed by the end of March 2022.
In December 2021, Chesapeake became the first company to certify all of its Haynesville natural gas operations jointly under the MiQ methane standard, and the EO100 Standard for Responsible Energy Development, which covers a broad range of environmental, social and governance (ESG) criteria. Over 840 continuous methane emissions monitoring devices have been placed in both Chesapeake's legacy Louisiana asset and in its newly acquired Vine acreage, which was certified under Project Canary's TrustWell certification process.
In Pennsylvania, Chesapeake installed approximately 950 methane monitoring devices on its legacy acreage and expects to begin installing approximately 330 devices on its newly acquired Chief acreage in April 2022. Certification of its legacy Pennsylvania assets is expected to be completed by mid-year 2022 and by year-end 2022 on its newly acquired Chief acreage. As a result, the company expects to ultimately market over 6 billion cubic feet (bcf) of natural gas per day (over 3 bcf per day net) as certified Responsibly Sourced Gas (RSG) from both the Haynesville and Marcellus basins by year-end 2022.
Chesapeake intends to invest over $30 million on ESG initiatives by year end 2022, including retrofitting more than 19,000 pneumatic devices which is expected to reduce reported GHG emissions by approximately 40% and methane emissions by approximately 80% enterprise wide.
Chesapeake also launched a new ESG microsite in December 2021, dedicated to the company's ESG reporting and progress toward its climate-related targets. In addition to providing performance data and program updates, the ESG site also provides details on the company's adoption of RSG, its commitment to diversity, equity and inclusion and a section dedicated to the company's revised executive compensation program that ties executive compensation to meeting specific ESG targets each year.