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Ohio Utica Shale

Chesapeake Energy reports biggest net loss in three years

By Bob Downing Published: November 2, 2012

From Bloomberg News:

By Joe Carroll - Nov 2, 2012 12:00 AM ET

Chesapeake Energy Corp. (CHK) wrote down $2 billion in natural gas deposits from the Rocky Mountains to the Gulf Coast as prices for the fuel plunged, triggering its biggest net loss in three years.

Chesapeake reported a net loss of $2.01 billion, or $3.19 a share, compared with profit of $922 million, or $1.23, a year earlier, the Oklahoma City-based company said in a statement yesterday. Excluding one-time items such as the writedown, Chesapeake earned 10 cents a share, a penny more than the average of 34 analysts’ estimates compiled by Bloomberg.

 

A 29 percent slide in U.S. gas prices during the quarter compared to a year earlier wiped out the equivalent of 4.9 trillion cubic feet of Chesapeake’s reserves, according to the statement, enough to supply every household in the U.S. for more than a year. Energy explorers from Australia’s BHP Billiton Ltd. (BHP)and Canada’s Encana Corp. (ECA) began writing down the value of North American gas properties earlier this year as the price slump worsened and many fields became unprofitable to drill.

“Chesapeake looks like it’s probably done with write-offs for now,” Philip Weiss, an analyst at Argus Research in New York, said during a telephone interview yesterday. “Eventually, they’ll be able to put those resources back on the books, when prices recover and they become economical” to drill.

Climbing Production

At Chesapeake, gas output climbed 25 percent to the equivalent of 3.81 billion cubic feet a day during the quarter, even as Chief Executive Officer Aubrey McClendon shifted the company’s drilling focus to production of oil and byproducts such as butane that command higher prices. McClendon also raised the 2012 drilling budget yesterday to $8.75 billion, an increase of 2.9 percent to 9.4 percent from the $8 billion to $8.5 billion estimate announced last month.

Chesapeake fell by 3.1 percent to $19.45 at 5 p.m. in New York. The net loss was the company’s biggest since the first three months of 2009, when Chesapeake wrote down the value of some reserves in response to the worldwide financial crisis and weak energy demand.

Gas futures traded in New York tumbled to an average of $2.893 per million British thermal units for the July-to-September period as increasing demand for the fuel failed to erode a growing surplus from U.S. shale wells.

U.S. production of so-called dry gas, or gas without liquid byproducts, rose 4.1 percent in July to 2.02 trillion cubic feet, the most ever for that month of the year, Energy Department figures showed.

Asset Sales

McClendon is selling assets to raise as much as $14 billion this year to plug a funding shortfall aggravated by the plunge in gas prices. The company said last month it will have $2.3 billion in surplus cash flow when 2012 ends, an about-face from its May 1 warning to investors that it was in danger of running out of cash as early as 2013.

Also yesterday, Chesapeake said it obtained a $2 billion, five-year term loan. Proceeds will be used to refinance a credit pact Chesapeake got in May that pays a higher interest rate, the Oklahoma City-based company said in a regulatory filing. Bank of America Corp., Goldman Sachs Group Inc. (GS) and Jefferies Group Inc. (JEF)arranged the loan.

Chesapeake lost 10 percent of its market value this year as the impact of falling gas prices was compounded by disclosures that McClendon borrowed more than $800 million last year to finance his personal stakes in thousands of company-owned oil and gas wells.

Chairman Role

McClendon was removed from the chairman’s role in June and more than half the board was replaced at the insistence of Chesapeake’s largest investors, Southeastern Asset Management Inc. and Carl Icahn.

The board has been conducting an internal investigation for more than six months of McClendon’s borrowings from some of the company’s biggest financiers. Chesapeake hasn’t said when the board will finish the inquiry. Probes also are underway at theInternal Revenue Service and the U.S. Securities and Exchange Commission.

Exxon Mobil Corp. (XOM) is the biggest U.S. gas producer.

(Chesapeake scheduled a conference call to discuss second-quarter results for 9 a.m. New York time today. To access the call, go to www.chk.com.)

To contact the reporter on this story:Joe Carroll in Chicago at jcarroll8@bloomberg.net

 

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