Chesapeake Profit Rises as Utica Shale Discovery Announced

Chesapeake Energy Corp. (CHK), the most active U.S. oil and natural-gas driller, said second-quarter profit rose as it announced an Ohio oil and gas discovery.

Net income rose to $467 million, or 68 cents a share, from $235 million, or 37 cents, a year earlier, Chesapeake said in a statement today. The shares rose 38 cents, or 1.1 percent, to $33.81 at 5:17 p.m. after the close of trading on the New York Stock Exchange.

Profit was 4 cents a share higher than the average of 28 analyst estimates compiled by Bloomberg, excluding such items as quarterly adjustments to the value of future contracts.

Chesapeake raised its drilling budget by $500 million to as much as $6.5 billion this year and next, citing higher costs for fracturing well bores and increased drilling in the Utica shale.

Chesapeake, based in Oklahoma City, has leased 1.25 million acres in the Utica Shale, a formation that stretches beneath the Eastern U.S. from Tennessee into Canada. Chesapeake said its acreage in the Utica, which is concentrated in Ohio, may be worth as much as $20 billion. It is seeking to sign a contract with a joint venture partner by the end of the year.

The Utica is “likely most analogous, but economically superior to, the Eagle Ford Shale in South Texas,” according to the statement.

“They’re saying it’s as good as or better than the Eagle Ford,” Biju Perincheril, a New York-based analyst for Jefferies & Co. said today in an interview.

Perincheril, who rates the shares “buy,” and owns none, said results for the quarter were 2 cents better than his estimate, apparently on higher production of oil and petroleum liquids.

More Rigs

“This is huge news for Ohioans and I’m simply thrilled to hear it,” Ohio Governor John R. Kasich said in a statement.

Chesapeake said it will increase its rig count in the Utica from five to eight this year, and may have as many as 20 rigs in the field by the end of 2012 and 40 rigs by 2014, according to the statement.

Chesapeake is spending half this year’s drilling budget on oil and petroleum liquids, which it says will comprise 25 percent of production next year, up from about 10 percent last year, according to an investor presentation posted earlier this month.

The company’s earnings have been damped in the past few quarters by its spending on the conversion from gas to oil, Scott Hanold, a Minneapolis-based analyst with RBC Capital Markets LLC, said in an interview before the earnings were released.

Rising Production

Production of oil and petroleum liquids rose 62 percent from a year earlier to 7.2 million barrels for the quarter, Chesapeake said in the statement. Total output rose 9 percent to the equivalent of 3 billion cubic feet of natural gas per day.

The earnings were released after the close of regular trading on U.S. markets. The shares have 18 buy ratings, 13 holds and a sell from analysts.

Chesapeake is operating 159 drilling rigs, the most among U.S. exploration and production companies, according to data from Baker Hughes Inc.

To contact the reporters on this story: Mike Lee in Dallas at mlee326@bloomberg.net; Jim Polson in New York at jpolson@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net