Chesapeake Shows 2Q Improvement
For the first time in the last eight quarters, Chesapeake Energy
Corp. of Oklahoma City, OK, turned a profit. The improvement was in
spite of decreased production.
In the second quarter, Chesapeake Energy Corp. of Oklahoma City,
OK, generated net income of $8.1 million on 33.6 Bcfe of
production. The average gas price realized during the quarter was
$1.88/Mcf. Factoring in oil sales, the gas equivalent commodity
price was $2.03/Mcfe. By comparison, during the second quarter of
1998 Chesapeake generated a net loss before extraordinary items of
$234.7 million on production of 37.2 Bcfe and a realized gas
equivalent price of $2.03/Mcfe.
"Chesapeake's gas production increased despite production losses
from asset sales," said CEO Aubrey K. McClendon. "Lease operating
expenses declined by 15%. Our depreciation rate remains among the
lowest in the industry. Our drilling operations and asset
rationalization program are adding value, and most importantly, we
were profitable for the first time in the past eight quarters.
"We are optimistic about the continued attractiveness of the
natural gas industry. Because of Chesapeake's 87% natural gas
reserve concentration, the company's asset value, cash flow and
earnings have significant leverage to improving natural gas prices.
In fact, for each $0.10 increase in natural gas prices,
Chesapeake's annual earnings and cash flow increased by
approximately $0.10 per share and net asset value increased by
approximately $0.50 per share."
Chesapeake increased its 1999 drilling budget to $120 million
from $90 million. The company anticipates funding its 1999 drilling
cap-ex from cash on hand and cash flow from operations.
Chesapeake's current 1999 budget forecast assumes a realized gas
equivalent price of $2.06/Mcfe. This is based on average 1999 Nymex
prices of $16.75/barrel and $2.23/Mcf and average differentials to
Nymex prices of $1.75/barrel and $0.30/Mcf, production of 125 Bcfe
(80% gas), lease operating expenses (including production taxes) of
$0.47/Mcfe, interest costs of $0.65/Mcfe, and general and
administrative costs of $0.12/Mcfe. Using current Nymex strip
prices, Chesapeake's estimated second half 1999 average revenue
realization would be $2.50/Mcfe, including differentials to Nymex
prices that are currently being realized of $1.25/barrel and
$0.25/Mcf. At these prices, the company's earnings, cash flow, and
EBITDDA during the second quarter would have increased by about $15
During the first half of 1999, Chesapeake produced 66.9 Bcfe and
replaced this production through the drillbit by about 140% at an
estimated finding cost of $0.75/Mcfe. The company is beginning to
hedge a portion of its gas production for April - October 2000.
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