Chesapeake Energy Corp. (CHK:US), the natural gas producer that announced plans last week to expand in the Rocky Mountains, said profit fell as a supply glut in the U.S. Northeast dragged down prices.
Second-quarter net income plunged by more than half compared to a year earlier even as the company cut spending and raised production. Chesapeake reported earnings of $191 million, or 22 cents a share, down from $580 million, or 66 cents, in 2013’s quarter, according to a statement today. Per-share profit excluding one-time items was 36 cents compared with the expected 44 cents, based on the average of 29 analysts’ estimates (CHK:US)compiled by Bloomberg.
“The earnings miss was all due to lower oil, gas, and liquids prices, but all operating results were positive and above guidance,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York. “They continue to reduce costs and improve operating efficiency, while selling assets and reducing spending.”
Chesapeake rose 0.5 percent to $26.19 at the close in New York.
Chesapeake warned investors July 29 that the price it received for gas averaged $2.45 per thousand cubic feet during the quarter, a 51 percent decline from a year earlier. The company cited excess supply in the Marcellus shale region that feeds gas to New York, Philadelphia and other Northeast markets.
Gas production in the region, which stretches across Pennsylvania and West Virginia, hit a record in July, topping 15 billion cubic feet a day, the U.S. Energy Department reported yesterday.
Total oil and natural gas output in the quarter beat analyst’s expectations, rising 13 percent to the equivalent of 694,650 barrels of oil a day. The company boosted its 2014 production target to 730,000 barrels a day.
The production gain in the quarter was mostly from natural gas output rather than oil, which investors value more due to higher prices. That and the failure to meet profit forecasts is a “slight negative” for Chesapeake, according to a Tudor Pickering Holt & Co. note to investors today.
Chief Executive Officer Doug Lawler has been selling gas fields, slashing capital spending and untangling the complex financial instruments favored by his predecessor, company co-founder Aubrey McClendon. Lawler replaced McClendon 13 months ago after an investor revolt led by activist shareholders including billionaire Carl Icahn.
Chesapeake reduced capital spending by 27 percent in the quarter to $1.32 billion compared to a year earlier, although spending rose 54 percent relative to the first three months of the year. The company received $675 million from asset sales and expects to receive more than $700 million in the second half, according to the statement.
“The key for us going forward is that we execute on this financial discipline and look for differential ways to add value for our shareholders,” Lawler said on the call.
Chesapeake this month will complete a $450 million deal with closely held RKI Exploration & Production LLC as part of a land swap that will boost the company’s holdings in the prolific Powder River Basin by an area twice the size of San Francisco.
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