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When a publicly-traded company provides investors with updated performance estimates through an investor-related presentation, it is these estimates that become the proverbial benchmark moving forward.

That being said, one of my favorite oil and gas plays, Chesapeake Energy (CHK), provided investors with a number of updates on Thursday, January 2, and I not only wanted to highlight those updates but also take a look at the company's ongoing progress at the Eagle Ford, Utica and Northern Marcellus shale plays.

Recently Updated FY2013 Estimates

On Thursday, Chesapeake Energy announced that it sees FY 2013 adjusted net income of approximately $1.14B, adjusted EBITDA of approximately $5B, its total capital expenses down 48% Y/Y to $6.9B, and 2013 daily production up 3% Y/Y to 3,985b cfe/day.

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(Source: Investor Presentation - Dated: 01/02/2014)

What will be the driving force behind Chesapeake meeting and/or exceeding its prescribed estimates? The company's shift to focus a majority of its capital on core E&P operations while significantly reducing its capital expenditures will play a key role in not only its FY2013 performance, but rather its performance over 3-5 years. For example, I think there is a very good chance the company's capital expenditure levels could meet or even fall below the $5.7 billion benchmark that was set in 2009.

(click to enlarge)

(Source: Investor Presentation - Dated: 01/02/2014)

If Chesapeake continues to shed underperforming assets while reducing the capital expenditures that are directly related to its leaseholds and other miscellaneous projects, shareholders could potentially see the company's capital expenditures fall below $5.0 billion in the next 2-3 years.

Chesapeake's Eagle Ford Operations (as of Q3 2013)

During the third quarter Chesapeake Energy connected 100 wells to sales with average peak daily rate of 930 boe/day. As of September 30, 2013, the company has 788 producing wells and 117 wells that were considered to be WOPL or in various other stages of completion.

Of the company's wells that are located in the Eagle Ford play, an estimated 70% would be drilling on existing pads by the latter part of the second half of 2013 and an estimated 85% would be doing the same by the second half of 2014.

If the company wants to demonstrate increases in its net production, compounded annual growth rate and its average peak daily rates, an increase in the number of rigs currently in the play would have to take place. As of September 30, there were ten rigs that were operational and although the company anticipates having fifteen or more by the end of 2014, I'd actually like to see that number fall into a range of sixteen-to-twenty by the end of 2014 and a range of twenty-two-to-twenty-five by the end of 2015.

Why? If the company's rig count were to fall into my estimated ranges, then there is a very good chance Chesapeake's quarterly net production could exceed 135 mboe/day and its compounded annual growth rate could exceed 45% or more by the first half of 2014.

Chesapeake's Utica Operations (as of Q3 2013)

As of September 30, 2013, Chesapeake Energy connected 63 wells to sales with average peak daily rate of 6.6 mmcfe/day. and drilled 377 wells that included 169 producing wells and 208 wells that were considered to be WOPL or in various other stages of completion.

If Chesapeake wants to demonstrate increases in daily net production (of approximately 165 mmcfe/day as of September 30), a few things need to happen. For example, the number of connected wells and the number of drilled wells need to increase by at least 5% and the deadlines regarding the company's Kensington processing operations need to continue to be sufficiently met.

Chesapeake's Northern Marcellus Operations (as of Q3 2013)

During the first nine months of 2013 Chesapeake Energy connected 37 wells to sales with average peak daily rate of 9.3 mmcfe/day. As of September 30, 2013, the company had 128 wells that were considered to be WOPL or in various other stages of completion.

Of the company's wells that are located in the Northern Marcellus play, an estimated 65% would be drilling on existing pads by the latter part of the second half of 2013 and an estimated 80% would be doing the same by the second half of 2014.

If the company wants to demonstrate increases in its net production, compounded annual growth rate and its average peak daily rates, an increase in the number of rigs currently in the play would have to take place. As of September 30, there were five rigs that were operational and although the company gave no anticipated outlook on the number of rigs it sees at the play by either 2014 or 2015, I'd actually like to see that number fall into a range of six-to-eight by the end of 2014 and a range of nine-to-twelve by the end of 2015.

Why? If the company's rig count were to fall into my estimated ranges, then there is a very good chance Chesapeake's quarterly net production could exceed 950 mmcf/day and its compounded annual growth rate could exceed 22% or more by the first half of 2014.

Risk Factors

According to Chesapeake Energy's most recent 10-K there are a number of risk factors investors should consider before establishing a position in this particular oil and gas play. These risk factors include but are not limited to:

#1 - The company's development and exploratory drilling efforts and its well operations may not be profitable or achieve targeted returns.

#2 - The company's hedging activities may reduce the realized prices it receives for any and all natural gas, oil and NGL sales, and may require the company to provide collateral for hedging liabilities and involve certain risks that would result in the counter-parties being unable to satisfy their obligations to the company.

#3 - The company's operations may be adversely affected by oilfield services shortages, pipeline and gathering system capacity constraints and various transportation interruptions.

Conclusion

For those of you considering a position in Chesapeake Energy, I strongly recommend keeping a close eye on the company's ability to proactively reduce its capital expenditures as well as any further developments at the Eagle Ford, Utica or Northern Marcellus shale plays over the next 12-24 months as each of these factors could play a role in improving the company's long-term performance.

Source: Chesapeake Energy: Why Its Shale Plays Will Continue To Deliver Beyond 2013