Chesapeake Aims to Be Top 5 US Liquids Producer by 2015

HOUSTON (Dow Jones Newswires), Nov. 4, 2010

Chesapeake aims to become a "top five" U.S. producer of oil and natural gas liquids by 2015, Chief Executive Aubrey McClendon said Thursday.

In an earnings conference call with analysts, McClendon said that the Oklahoma City company aimed to produce about 150,000 barrels a day of liquids by year-end 2012, and 250,000 barrels a day of liquids by 2015.

The company plans to shift its capital spending from 90% that was dedicated to natural gas in 2009 to 35% dedicated to natural gas in 2012, McClendon said. But the company is open to revising its strategy if natural gas prices come back to higher levels.

Natural gas producers like Chesapeake, which helped create an oversupply of natural gas in the U.S. by exploiting tight rock formations called shales, are now turning to more profitable oil production as natural gas prices stagnate.

Chesapeake, one of the largest independent energy producers in the U.S., said Wednesday that its third-quarter profit more than doubled on investment gains and prior-year hedging losses, while adjusted results beat analysts' expectations on sharply higher gas prices.

Chesapeake posted earnings of $558 million, or 75 cents a share, up from $192 million, or 30 cents a share, a year earlier. Excluding items such as investment gains and hedging impacts, per-share profit fell to 70 cents from 75 cents. There were 19% more shares outstanding in the latest period.

Revenue jumped 43% to $2.58 billion following last year's 76% plunge.

Analysts polled by Thomson Reuters recently forecast earnings of 64 cents on $2.31 billion in revenue.

However, Chesapeake shares were down 1.39% to $22 on Thursday. Analysts with Tudor, Pickering & Holt said that the company's near-term spending rate outweighs the effect of its long-term plan to increase production of liquids on the stock.

Chesapeake has managed to keep growing its production and cash flow by partnering with international oil companies interested in joint ventures. Recently the company signed an agreement with Cnooc Ltd. (CEO, 0883.HK) in South Texas's Eagle Ford Shale, the first major U.S. investment by a Chinese state-run company.

Chesapeake, which McClendon said faces a "tough industry environment in 2011," will continue seeking these joint venture opportunities.

McClendon said that it will seek to sell 33% of its acreage in the Niobrara shale in Colorado and Wyoming.

Chesapeake Chief Financial Officer Domenic Dell'Osso said the company would seek another joint venture on a new, "very large" liquids project that remained undisclosed.

Both the Niobrara and the undisclosed transactions are expected to close in 2011, the executives said.

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