UPDATE:Chesapeake Energy Swings To 4Q Loss On $1.8 Billion Write-Down
February 17 2009 - 6:28PM
Dow Jones News
Chesapeake Energy Corp. (CHK) swung to a fourth-quarter net loss
amid a $1.8 billion write-down on its natural gas and oil assets
because of a drop in energy prices, but it reported surging revenue
on strong natural gas and oil sales.
The results highlight how energy companies have faced
increasingly difficult short-term pressures, including falling
commodity prices and tightened credit markets. Still, Chesapeake,
which just months ago was seen as in danger of collapse, has
improved its position recently. It sold some $12 billion of assets
in the second half of 2008 after a debt-fueled growth spurt was
halted by the credit crunch and slumping natural gas prices.
Natural gas prices have lost nearly 70% of their value since
hitting a July 2 peak of $13.694 a million British thermal
units.
Ample supplies of natural gas and surging production have put
downward pressure on prices as companies like Chesapeake have
learned to perforate natural gas-rich rock formations known as
shales and free the gas trapped within. The ability to tap these
fields has caused U.S. natural gas production to surge.
Now producers are idling rigs and trimming production growth
forecasts to cope with the steep decline in commodity prices.
Chesapeake has also issued new debt in order to shore up
cash.
Phil Weiss, an analyst with Argus Research Co. in New York, said
he would like the company to bring its spending in line with its
cash flow rather than issuing debt.
"We want them to show they can live within their cash flow,"
Weiss said.
The nation's largest natural gas producer by revenue reported a
net loss of $866 million, or $1.51 a share, compared with a
year-earlier net income of $303 million, or 33 cents a share.
Excluding items, earnings fell to 73 cents from 93 cents a
share.
Last month, Chesapeake said it would record $1.8 billion in
write-down charges, joining other major energy companies in writing
down assets that are no longer worth as much as once thought. The
prior year's quarter included a mark-to-market loss of $180
million.
Revenue increased 43% to $2.98 billion.
Analysts polled by Thomson Reuters projected per-share earnings
of 74 cents on revenue of $2.58 billion.
Average daily production rose 4.4%, as total natural gas
production increased 4.4% and oil production grew 4.1%.
The average realized price for gas dropped 12%, and oil prices
were down 24%.
Chesapeake ended the quarter with reserves of 12.1 trillion
cubic feet per natural gas equivalent, up 11%. Natural gas made up
92% of the company's total production, even from a year
earlier.
Shares were up 0.5% to $17.20 in after-hours trading. The
company's stock has lost over three-quarters of its value from its
all-time high of $74 in July, as a plunge in prices and the credit
crunch pummeled producers' share prices.
-By John Kell, Dow Jones Newswires; 201-938-5285;
john.kell@dowjones.com
-By Jason Womack, Dow Jones Newswires; 713-547-9201;
jason.womack@dowjones.com