Chesapeake 3Q Net Up 65%; Shale Deals Worth $3.4B Unveiled

(Dow Jones Newswires), Nov. 3, 2011

Chesapeake's third-quarter profit rose 65% as output continued to soar, while the company unveiled two deals for some of its shale-gas assets for an estimated price of $3.4 billion.

Shares surged 7.7% to $31.30 after hours on the better-than-expected results. The stock was up 12% this year through the close.

Chesapeake--the second-largest U.S. natural-gas producer after ExxonMobil--has seen mixed results over the past year as weak natural gas prices drag down revenue from higher output.

On Thursday, the company disclosed two joint-venture deals worth about $3.4 billion to monetize its assets in the Utica Shale region of eastern Ohio. The first letter-of-intent agreement will give an undisclosed international energy company a 25% stake in about 650,000 net acres mostly owned by Chesapeake, giving the gas producer about $2.14 billion for its acreage. Chesapeake will operate the joint venture and conduct all leasing, drilling, completion, operations and marketing activities for the project. The deal is expected to close mid-December.

Chesapeake also sold $500 million of perpetual preferred shares of its newly formed CHK Utica LLC business to EIG Global Energy Partners. Chesapeake expects to sell up to $750 million of additional CHK Utica preferred shares to other investors, including limited partners of EIG, by Nov. 30.

The shale-gas deals come alongside a separate initiative Chesapeake unveiled in July that calls for $1 billion in spending over the next 10 years to boost domestic natural-gas demand. Prices have been unable to stage a rally as Chesapeake, and other natural-gas producers, unlock new reserves from unconventional shale gas drilling in the U.S. The resulting glut of gas has depressed prices.

Chesapeake has said it plans to redirect about 1% to 2% of its forecast annual drilling budget toward projects that could potentially bring more demand for natural gas as a transportation fuel.

The company also recently resolved a shareholder lawsuit through a settlement that forced Chief Executive Aubrey McClendon, one of the nation's highest paid executives in 2008, to give up a modest portion of his $100-million-plus pay package that year. The agreement comes after several oil-and-gas executives have faced increased scrutiny over the size of their pay packages.

In September, Chesapeake firmed up the executive management team of its newly formed oilfield services unit, as the company considers ways to offset the oilfield inflation it experienced in 2011 and expects to experience again in 2012.

In the latest quarter, Chesapeake posted a profit of $922 million, up from $558 million. On a per-share basis that excluded preferred dividends, earnings surged to $1.23 from 75 cents. Excluding hedging effects, investment gains and other items, per-share profit rose to 72 cents from 70 cents. Revenue rose 54% to $3.98 billion.

Analysts polled by Thomson Reuters were expecting a 66-cent per-share profit with $3.14 billion of revenue.

Operating margin widened to 37.3% from 31.7% on the revenue jump.

Chesapeake's average daily production grew 9.4%. The average realized price rose 1.9% for gas and 5.4% for oil and natural-gas liquids.

Copyright (c) 2011 Dow Jones & Company, Inc.


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