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A key overview of Chesapeake’s second quarter 2014 earnings

Kshitija Bhandaru

A key overview of Chesapeake and its second quarter 2014 earnings (Part 4 of 8)

(Continued from Part 3)

Earnings highlights

Chesapeake (CHK) announced earnings for the second quarter ended June 30 on August 6.

Revenues for the quarter were $5.1 billion, beating Wall Street analysts’ estimate of $4.3 billion. These revenues were 10% higher than last year’s revenues.

Net income after adjusting for special items was $235 million. This figure missed the $326 million estimate by Wall Street analysts and was approximately 11.3% lower year-over-year. Net income took a hit due to special items, including the loss on repurchase of debt securities related to refinancing. Special items reduced the net income for the quarter by $90 million on an after-tax basis.

Adjusted earnings per share or EPS amounted $0.36. These earnings missed analysts’ estimate by $0.07.

Operational performance

Chesapeake’s daily production for 2Q 2014 was 694,650 barrels of oil equivalent (or boe). This was a 13% increase year-over-year, adjusted for asset sales.

Average daily production consisted of approximately 113,400 barrels (bbls) of oil, 84,300 bbls of NGLs, and 3.0 billion cubic feet (bcf) of natural gas.

Chesapeake raised the midpoint of its expected 2014 daily production rate by 10,000 Boe, or 1.5%, to between 685,000 boe and 705,000 boe per day. Total production growth in 2014 is slated to be between 9% and 12%.

The company accredits this increase to better production trends in 1H 2014 and an increase in forecast well connection in 2H 2014. The company plans a 35% increase in planned well connections during the second half of the year.

In its earnings call, the company noted, “Looking ahead, based on current performance and anticipated completion of new infrastructure, we are confident that our year end 2014 daily production exit rate will exceed 730,000 barrels of oil equivalent.”

Capital expenditure and spending

Total spending during the second quarter was $1.3 billion. Of this, approximately $1.1 billion was for drilling and completion activities, approximately $50 million was for leasehold acquisition, and approximately $130 million was for other capital expenditures.

The company noted that it spent 42% of its projected 2014 capex during 1H 2014. As a result, it’s expecting a significant increase in well connections during 2H 2014.

Plus, CHK also noted that it remains well within its previously stated full year 2014 capex range of $5 billion to $5.4 billion.

CHK is a component of several energy ETFs. These include the Energy Select Sector SPDR (XLE), the Vanguard Energy ETF (VDE), the iShares US Energy ETF (IYE), and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

The following part of this series talks about why Chesapeake’s earnings took a hit this quarter.

Continue to Part 5

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