Natural gas provider
Chesapeake Energy Corp.
) reported adjusted fourth quarter 2012 earnings of 26 cents per
share, beating the Zacks Consensus Estimate of 14 cents by almost
86%. The outperformance came on the back of improved oil
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However, the reported figure plunged by more than 55% from the
year-earlier profit of 58 cents a share in the wake of lower
average price realizations for natural gas (down 46.5% year over
Total revenue improved 29.8% to $3,539.0 million from $2,727.0
million a year ago. The top line also got the better of the Zacks
Consensus Estimate of $1,532.0 million.
Full year 2012 adjusted earnings of 61 cents a share surpassed
our expectation of 48 cents. The reported figure, however, fell
78.2% from the year-ago profit level of $2.80 per share.
Total revenue in 2012 was $12,316.0 million, representing an
increase of 5.9% from the 2011 figure of $11,635.0 million and
beating the Zacks Consensus Estimate of $5,745.0 million with
Chesapeake's average daily production in the quarter increased
over 9% year over year to 3,931 million cubic feet equivalent
(MMcfe), of which natural gas accounted for 77%. The percentage
of natural gas production to total volume decreased 4% points on
an annualized basis. However, natural gas production grew 2.9% to
280 billion cubic feet (Bcf) from 272 Bcf, while oil production
expanded 68.9% from the year-ago level.
Full year 2012 total production grew 18.8% year over year to
3,886 MMcfe per day, comprising 80% of natural gas.
Natural gas equivalent realized price in the reported quarter was
$4.23 per thousand cubic feet equivalent (Mcfe), down 16.7% from
$5.08 in the year-earlier quarter. Average realizations for
natural gas were $2.07 per Mcf compared with $3.87 per Mcf in the
year-earlier quarter. Liquids were sold at $92.23 per barrel, up
4.8% from the year-ago price of $88.02 per barrel.
On the cost front, production expenses decreased 5.7% from the
year-earlier level to 83 cents per Mcfe in the fourth quarter.
At the end of the quarter, Chesapeake − the largest U.S. natural
gas producer after
) − had a cash balance of $287 million. The debt balance stood at
$12,157 million, representing a debt-to-capitalization ratio of
40.5%. Operating cash flow decreased 60.3% year over year to
As the company shifts its focus to more liquid-rich plays, it
expects its natural gas production to turn down approximately 7%
in 2013, while liquids production is expected to increase
Chesapeake expects 2013 total production in the band of
1,390-1,454 Bcfe. Natural gas is expected to contribute
1,030-1,070 Bcf to the total production. Oil production forecast
is 36-38 million barrels/MMBbls and NGL will likely be in the
24-26 MMBbls range.
During 2013, it aims to spend approximately 86% of its total
drilling and completion capex in liquids-rich plays. Chesapeake
plans to invest heavily in the development of its holdings in the
Eagle Ford Shale, Granite Wash and Mississippi Lime.
At the end of 2012, Chesapeake had proved reserves of
approximately 15.7 trillion cubic feet equivalent (Tcfe) - 57%
proved developed - down 17% from year-end 2011.
Chesapeake retains a Zacks Rank #3 (short-term Hold rating).
There are other stocks in the oil and gas industry like
Range Resources Corporation
Memorial Production Partners L.P.
) that appear more attractive. Both hold a Zacks Rank #2