Chesapeake profit soars on asset sale, other gains
BY BEN LEFEBVRE
OKLAHOMA CITY, Oklahoma -- Chesapeake Energy Corp.'s second-quarter earnings rose 91% as the natural gas producer benefited from asset sales that brought more than half a billion to its bottom line and as it announced it is getting close to divesting its Permian Basin assets in West Texas.
Chesapeake reported a profit of $972 million, or $1.29 a share, up from $510 million a year earlier, a figure that included $584 million in an after-tax gain from the recent sale of its interest in Chesapeake Midstream Partners LP and $490 million in mark-to-market gains related to its hedging programs. The company, the second-largest producer of natural gas in the U.S. after Exxon Mobil Corp. (XOM), has been selling properties in oil and gas fields to offset debt and pay for its move to focus on more-profitable oil.
Excluding the asset-sale gains and other items, adjusted earnings were $3 million, or 6 cents a share. Revenue increased 2.1% to $3.39 billion.
Analysts polled by Thomson Reuters most recently projected earnings of 7 cents a share on revenue of $2.44 billion.
The Oklahoma City company's debt increased 10% in the second quarter to $14.3 billion. The company also raised its full-year budget for land acquisition and drilling to a combined $10 billion, up 10% from its previous estimate in May. Chesapeake said it is still committed to reducing its debt to $9.5 billion by year's end.
Chesapeake, like many of its rivals, has been hurt by stubbornly low prices for natural gas amid a production glut. Natural-gas production was up 18% despite production curtailments. Oil production surged 88%. Overall production of oil, gas and natural-gas-liquids production rose 25% to 3.81 billion cubic feet equivalent a day, including natural-gas-liquids-production growth of 65%.
The company, which has been criticized by investors and analysts of gobbling more land than it can profitably drill, increased its outlook for spending in oil and gas acreage. "The thing is the acreage is up--it hasn't slowed down," said Morningstar Inc. analyst Mark Hanson.
The average realized price fell 64% for natural gas in the second quarter and 32% for natural-gas liquids, including realized hedging impacts. Average oil prices on that basis were up 4.1%.
Chesapeake on Monday raised its expected proceeds from asset sales to between $13 billion and $14 billion during 2012, up from a minimum of $11.5 billion.
The company, which announced $7 billion in asset sales during the current quarter, said it is in the process of closing a deal with an affiliate of EnerVest Ltd., a Houston energy investment firm that has worked with Chesapeake in the Utica shale formation in the U.S. Northeast. Chesapeake said it also has received bids for two other Permian Basin parcels.
Chesapeake recently revamped its board in an effort to moderate the influence of Chief Executive Aubrey McClendon, who previously also had been chairman, amid governance controversies and pressure from investors. Mr. McClendon said the company's increased plans for asset sales this year "will enable us to accomplish our planned 25% long-term debt reduction."
The company expects 2013 natural-gas production capacity will be down 12% from 2012, leading to a production drop of about 7%.
Shares were up 3.6% at $18.35 in recent after-hours trading Monday as the company also raised its target for asset sales for the year. Through the close, the stock was down roughly 21% this year.
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