Chesapeake Delivers 'Solid Results' for Second Quarter 2009
Chesapeake Energy has announced financial results for the 2009 second quarter. For the quarter, Chesapeake reported net income to common shareholders of $237 million ($0.39 per fully diluted common share), operating cash flow of $1.006 billion (defined as cash flow from operating activities before changes in assets and liabilities) and ebitda of $763 million (defined as net income before income taxes, interest expense, and depreciation, depletion and amortization expense) on revenue of $1.673 billion and production of 223 billion cubic feet of natural gas equivalent (bcfe).
The company's 2009 second quarter results include a realized natural gas and oil hedging gain of $597 million. The results also include various items that are typically not included in published estimates of the company's financial results by certain securities analysts. Excluding the items detailed below, Chesapeake generated adjusted net income to common shareholders for the 2009 second quarter of $377 million ($0.62 per fully diluted common share) and adjusted ebitda of $1.030 billion. The excluded items and their effects on 2009 second quarter reported results are detailed as follows:
- a net unrealized noncash after-tax mark-to-market loss of $109 million resulting from the company's natural gas, oil and interest rate hedging programs;
- an after-tax charge of $21 million related to restructuring and relocation costs in the company's Eastern Division and certain other work force reduction costs; and
- a combined after-tax charge of $10 million related to estimated bad debts owed to Chesapeake that may be uncollectible, the impairment of an investment and a loss on exchanges of certain of the company's contingent convertible senior notes for shares of common stock.
Company Updates Asset Monetization Plans
During 2009 and 2010, Chesapeake plans to increase its liquidity, reduce its borrowings under its revolving credit facility and also strengthen its balance sheet through asset monetizations and the growth of its proved reserve base. As part of this plan, Chesapeake is targeting to monetize leasehold, producing properties, midstream assets and other assets for a range of $2.35 to $3.05 billion in 2009 and $1.25 to $1.80 billion in 2010. The company anticipates utilizing the monetization proceeds for capital expenditures and to reduce borrowings under its revolving credit facility.
Since March 31, 2009, the company has sold or agreed to sell approximately $900 million of assets including producing properties and gathering assets located primarily in Louisiana for $208 million (closed June 30), certain midstream and real estate surface assets for $172 million (closed on various dates in the second quarter), producing properties in central Texas for $75 million (closed July 1), and certain other midstream assets in multiple transactions for a total of approximately $70 million (closings anticipated on various dates in the third quarter). In addition, the company today sold certain Chesapeake-operated long-lived producing assets in South Texas in its fifth volumetric production payment transaction (VPP) for proceeds of $371 million, or $5.46 per mcfe of proved reserves. The assets included proved reserves of approximately 68 bcfe and current net production of approximately 55 mmcfe per day.
Chesapeake is planning to sell certain non-Haynesville Shale producing assets in Louisiana in its sixth VPP in the next 90 days for approximately $225-$250 million and also other mature producing assets in the second half of 2009 for approximately $200 million. The company is also working to finalize agreements with a private equity investor to sell a 50% minority interest in its Barnett Shale and Mid-Continent natural gas gathering and processing assets in the company’s midstream subsidiary, Chesapeake Midstream Partners. The company anticipates completing the midstream transaction in the 2009 third quarter for proceeds of more than $550 million. Finally, Chesapeake continues to have discussions with several companies about a possible joint venture on some or all of its Barnett Shale leasehold in a transaction targeted for completion by year-end 2009.
Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented, "We are pleased to report our financial and operational results for the 2009 second quarter. Chesapeake was able to deliver very solid results for the quarter despite the 70% drop in natural gas prices over the past year as a result of our successful hedging program, strong operating capabilities, low cost structure, powerful assets and very attractive joint venture arrangements.
"We are particularly proud of our very strong quarterly proved reserve additions of 741 bcfe at a finding and net acquisition cost of $0.72 per mcfe and our outstanding organic reserve additions of 836 bcfe at a drilling cost of only $0.87 per mcfe. During the quarter, we benefited from $311 million of drilling carries and we anticipate receiving more than $3.7 billion of additional carries through 2013. We believe these carries, in combination with our very low-cost Big 4 shale and two major Granite Wash plays will result in very high returns on invested capital, reduced capital expenditures and a rapidly improving balance sheet for years to come.
"Our high level of hedging at attractive prices should continue to insulate Chesapeake from potentially soft natural gas prices during the remainder of 2009. We believe that dramatically reduced U.S. drilling activity should soon lead to steep natural gas production declines in the industry. This should work to tighten natural gas markets, lift natural gas prices and improve the company's profitability in 2010 and beyond.
"Chesapeake's 2009 asset monetization program is on track with $900 million of proceeds captured to date and multiple transactions progressing toward completion in the second half of 2009 that will lead to total asset monetizations for the year of between $2.35 and $3.05 billion. We anticipate this program, combined with strong operating cash flow, will enable the company to continue funding its highly economic investment program solely from internal resources while at the same time reducing the company’s debt levels both absolutely and on a per proved mcfe basis. We believe Chesapeake is very well positioned to deliver substantial quarterly increases in value to our investors in the years ahead."
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