Chesapeake Energy Corp. (CHK) said Sept. 29 that it would cut 15% of its staff, or 740 people, to reduce costs and align its workforce to the realities of the market environment.
In connection with the reduction, the company estimates aggregate one-time charges will be about $55.5 million in third-quarter 2015, including related employer payroll taxes. The charges will be paid in cash during 2015, Chesapeake said in an SEC filing.
In an afternoon letter sent to employees, Doug Lawler, president and CEO, said that the current commodity price environment continues to challenge the industry and Chesapeake.
Over the past year, the company has taken significant actions to reduce costs and decrease capital spending, he said.
“As part of our continued efforts to address this pricing environment head on, we released approximately 15% of our employees across all functions of the company,” Lawler said. “While this was extremely difficult, we are acting decisively and prudently to enhance the long-term competitiveness and strength of Chesapeake.”
The biggest hit will come at the company’s Oklahoma City headquarters, where 19% of employees will be laid off.
Chesapeake’s 2015 capex is $3.6 billion. Wells Fargo Securities estimates the company will outspend discretionary cash flow by $1.3 billion in 2015. Among other large cap E&Ps, outspending ranges from $161 million to $1.4 billion by Anadarko Petroleum Corp. (APC).
The company’s estimated net debt in 2015 is five times its EBITDAX and rises to more than seven times EBITDAX in 2016.
Lawler told employees he was grateful to each employee’s contributions.
Eligible employees will receive severance packages and career transition/outplacement assistance.
“As I have said in the past, we must remain focused on building an enduring, resilient and profitable enterprise—one that can flourish in any commodity price environment,” he said.
Contact the author, Darren Barbee, at dbarbee@hartenergy.com.
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