UPDATE:Chesapeake Energy In Talks Over More US Joint Ventures
February 18 2009 - 12:34PM
Dow Jones News
Chesapeake Energy Corp. (CHK) Chief Executive Aubrey McClendon
said Wednesday that the natural gas producer is in talks with
international energy companies about joint ventures in the U.S.
"There is a high degree of international energy company interest
in shale plays in the U.S.," McClendon said during a conference
call.
Chesapeake has already completed a number of joint ventures last
year - entering into partnerships with BP PLC (BP), StatoilHydro
(STO), and Plains Exploration & Production Co. (PXP). All of
those ventures involved natural gas-rich fields known as shales.
Under those agreements, the companies paid cash and agreed to cover
part of Chesapeake's drilling costs in exchange for acreage.
Shales are dense rock formations that companies such as
Chesapeake, Devon Energy Corp. (DVN) and Petrohawk Energy (HK) have
learned to perforate and free the gas trapped within. Shales
contain huge natural gas reserves and have been credited with
creating a surge in U.S. natural gas production that has helped
bring down prices for the commodity.
Natural gas prices have lost about 70% of their value since
peaking July 2 at $13.694 a million British Thermal units. The U.S.
recession has also caused a decline in industrial gas demand, which
accounts for about one-third of U.S. consumption.
McClendon said that the company is in conversations with
multiple international energy companies about joint ventures
involving the Barnett Shale in North Texas and other U.S. gas
fields. Chesapeake holds large acreage positions in the Haynesville
Shale in Texas and Louisiana, the Marcellus Shale in Appalachia,
and the Fayetteville Shale in Arkansas.
Dan McSpirit, an analyst with BMO Capital Markets, said that
through joint ventures in these gas fields, international companies
gain expertise and establish a cost structure to exploit these
shale formations.
"I think you will see one in the Barnett by the end of the
year," McSpirit said.
McClendon said that Chesapeake wasn't interested in buying the
assets of oil and gas producers distressed by the downturn in
commodity prices and tightness in the credit markets.
"We are focused on one market we think is a market of our
making, which is the international joint venture market," McClendon
said.
Company executives also predicted that service costs would
decline by more than 25% in 2009.
"Nearly every day vendors are approaching us with new reduced
rates and we are negotiating with each and every one of them
earnestly," Mark Rowland, Chesapeake's chief financial officer,
said.
The executive's comments came during a conference call to
discuss Chesapeake's fourth quarter earnings.
Chesapeake, the top producer of U.S. natural gas by volume,
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 are facing
increasingly difficult short-term pressures amid the global
economic downturn. Still, Chesapeake, which just months ago was
seen as being 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.
Chesapeake 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
reassessing the value of 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 Jason Womack, Dow Jones Newswires; 713-547-9201;
jason.womack@dowjones.com
(John Kell contributed to this report.)