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Chesapeake Energy Corporation (CHK): What’s Next?

Chesapeake Energy Corporation (NYSE:CHK)Though natural gas still comprises three-quarters of Chesapeake Energy Corporation (NYSE:CHK)‘s total production, the company has made impressive strides in boosting oil production.

Because of severely depressed natural gas prices over the past few years, the Oklahoma City-based company embarked on a strategy to diversify its commodity mix away from the out-of-favor commodity and toward more profitable opportunities, such as oil and gas liquids.

Highlights from Chesapeake Energy Corporation (NYSE:CHK)’s first quarter show that this shift in strategy will continue for the foreseeable future, or at least until gas prices recover to a level where the company’s gassy assets start generating rates of return that are competitive with its oilier assets. Let’s take a closer look.

Oil production growth
Chesapeake Energy Corporation (NYSE:CHK)’s first-quarter oil production came in at 103,000 barrels per day, up 6% sequentially and 56% year over year, while natural gas liquids production was roughly 54,300 barrels per day, representing an 8% sequential increase and a 14% year-over-year improvement.

Oil output growth was driven mainly by strong performance from the company’s Eagle Ford and Greater Anadarko Basin operations. Chesapeake Energy Corporation (NYSE:CHK) continues to see major efficiency gains in these plays, which have led to meaningfully lower well costs and a decline in the number of drilling days. In the Eagle Ford, for instance, the company reported a 28% year-over-year decrease is spud-to-spud cycle times, which fell from 25 days to just 18 days in the first quarter.

Eagle Ford and Greater Anadarko Basin progress
Daily net production in the Eagle Ford came in at 75,000 barrels of oil equivalent in the first quarter, representing a 225% year-over-year increase, of which 62,000 barrels of oil equivalent was liquids. The company drilled 91 new wells in the play during the first quarter and is targeting a year-end exit rate of 92, 000 barrels of oil equivalent per day. It is currently operating 15 rigs in the play, with plans to reduce its rig count to 13 in the second half of the year.

In the Greater Anadarko Basin, Chesapeake Energy Corporation (NYSE:CHK) is focused on five core plays, which include the Mississippi Lime, Granite Wash, Cleveland, Tonkawa and Hogshooter. In the first quarter, aggregate net production from the five plays came in at 114,000 barrels of oil equivalent per day, up 30% year over year and up 9% sequentially. Chesapeake Energy Corporation (NYSE:CHK) is currently running 28 operated rigs in the five plays.

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