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Chesapeake Energy’s Lawler lifts cash flow to cover drilling costs

JOE CARROLL

OKLAHOMA CITY, Oklahoma (Bloomberg) -- Chesapeake Energy is on track to make more cash than it spends for the first time in more than a decade as CEO Doug Lawler’s cost cuts take hold.

Chesapeake raised its full-year estimate of cash flow to $5.8 bn to $6 bn on May 7, 2014, a 13% increase at its midpoint from the previous forecast. When combined with asset sales that have already topped $900 mn this year, the proceeds will more than cover spending for the first time since 2001.

Lawler, who replaced Chesapeake founder Aubrey McClendon 11 months ago after an investor revolt, increased the cash-flow estimate after boosting output to a first-quarter record and shaving 8% off the company’s cost to extract the equivalent of a barrel of crude.

Another infusion of cash is expected in coming months when Chesapeake plans to sell or spin off a rig business that RBC Capital Markets analysts said could be worth $1.9 bn.

“I could not be more excited about the progress we’re making,” Lawler said during a conference call with analysts and investors.

First-quarter net income climbed to $425 mn, or 54 cents a share, from $58 mn, or 2 cents, a year earlier, Chesapeake Energy said. Per-share profit excluding one-time items was 11 cents more than the 48 cent average of 29 analysts’ estimates compiled by Bloomberg.

Record-breaking cold weather across parts of the U.S. that boosted demand for gas to run furnaces was a boon to Chesapeake, which pumps more of the fuel than any domestic producer except Exxon Mobil. Chesapeake’s output rose 1.8% to the equivalent of 675,556 bpd during the January-to-March period from a year earlier.

The company spent $4.73 to produce each barrel of production, down from $5.14 during the first quarter of 2013, according to the statement. Chesapeake’s output was 71% natural gas, with the rest comprised of crude and so-called gas liquids including propane.

U.S. gas fetched an average price of $4.72 per million British thermal units during the first three months of this year, a 36% increase from a year earlier, according to data compiled by Bloomberg.

Chesapeake raised $925 mn so far this year from sales of assets including equipment used in pipeline networks, real estate and an equity stake in Chaparral Energy, according to the statement. The company said it will provide details on additional planned asset sales at a day-long presentation to analysts on May 16, the first such event since 2010.

Lawler, who was recruited to run Chesapeake from Anadarko Petroleum by investors Carl Icahn and O. Mason Hawkins, last month told a Rotary Club lunch crowd that the company may expand overseas in coming years.

When asked about those remarks during the conference call, Lawler said he expects robust foreign demand for Chesapeake’s shale-drilling expertise as exploration of those formations outside the U.S. expands.

“We’ve got a lot of wood to chop” in the U.S., Lawler said. “But the Chesapeake geoscience talent, the company’s speed, operational capabilities and expertise are outstanding. Chesapeake has that expertise and could be part of” foreign shale ventures.

05/08/2014

 

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