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Chesapeake Earnings Outshine

Zacks Equity Research

Natural gas provider Chesapeake Energy Corp. (CHK) reported adjusted first quarter 2013 earnings of 30 cents per share, up 67% year over year and ahead of the Zacks Consensus Estimate of 24 cents. The outperformance came on the back of improved oil production.

Total revenue improved 41.5% to $3,424.0 million from $2,419.0 million a year ago. The top line also got the better of the Zacks Consensus Estimate of $1,877.0 million.

Operational Performance

Chesapeake's average daily production in the quarter increased 7.5% year over year to 358 billion cubic feet of natural gas equivalent (Bcfe), of which natural gas accounted for 76%. The percentage of natural gas production to total volume decreased 5% points on an annualized basis. However, natural gas production grew 0.7% to 273 billion cubic feet (Bcf) from 271 Bcf, while oil production expanded 54.5% from the year-ago level.

Natural gas equivalent realized price in the reported quarter was $4.46 per thousand cubic feet equivalent (Mcfe), up 10.9% from $4.02 in the year-earlier quarter. Average realizations for natural gas were $2.13 per Mcf compared with $2.35 per Mcf in the year-earlier quarter. Liquids were sold at $94.85 per barrel, up 2.4% from the year-ago price of $92.63 per barrel.

On the cost front, production expenses decreased 18.1% from the year-earlier level to 86 cents per Mcfe.


At the end of the quarter, Chesapeake − the largest U.S. natural gas producer after ExxonMobil Corporation (XOM) − had a cash balance of $33 million. The debt balance stood at $13,449 million, representing a debt-to-capitalization ratio of 42.7%. Operating cash flow increased 237.2% year over year to $924.0 million.


As the company shifts its focus to more liquid-rich plays, it expects natural gas production to fall approximately 7% in 2013, while liquids production is expected to increase approximately 27%.

Chesapeake expects 2013 total production in the band of 1,420–1,474 Bcfe. Natural gas is expected to contribute 1,060–1,090 Bcf to the total production. Oil production forecast is 37–39 million barrels/MMBbls and NGL will likely be in the 23–25 MMBbls range.

During 2013, Chesapeake aims to spend approximately 86% of its total drilling and completion capex in liquids-rich plays. The company also plans to invest heavily in the development of its holdings in the Eagle Ford Shale, Granite Wash and Mississippi Lime.

Zacks Rank

Chesapeake retains a Zacks Rank #3 (short-term Hold rating). However, there are other Zacks Ranked #1 (Strong Buy) stocks in the oil and gas industry like Harvest Natural Resources Inc. (HNR), and EPL Oil & Gas, Inc.  (EPL) that appear more attractive in the short term.

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Read the Full Research Report on EPL

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