Chesapeake Misses Estimates as Gas Field Writedowns Mount

  • Increases 2016 asset sale target to more than $2 billion
  • Chesapeake plans to sell some Haynesville shale acreage

Chesapeake Energy Corp. missed analyst estimates as a slump in natural gas prices prompted a $1 billion impairment of its gas fields and eroded the value of the company’s hedges.

The second-quarter loss attributable to common stockholders narrowed to $1.79 billion, or $2.48 a share, from a loss of $4.15 billion, or $6.27 a share, a year earlier, the Oklahoma City-based company said in a statement on Thursday. The per-share result, excluding one-time items, was 3 cents worse than the 11-cent loss that was the average of 30 analysts’ estimates in a Bloomberg survey. Revenue declined 54 percent year over year, the company said in the statement.

Chesapeake’s sixth straight quarterly loss was driven by a $1.05 billion reduction in the value of the company’s assets and $544 million in unrealized hedging losses, according to the statement. The second-largest U.S. gas driller has taken $16 billion in impairments since the beginning of 2015 and said in a separate regulatory filing that more writedowns are imminent. Chesapeake also announced plans to sell fields in the Haynesville shale after buying out a partner last month for about $87 million, and lifted its full-year divestiture target to $2 billion from the previous $1.2 billion to $1.7 billion range. 

"Financial discipline remains our top priority, and we continue to work toward additional solutions to improve our liquidity, reduce our midstream commitments and enhance our margins," Chief Executive Officer Doug Lawler said in the statement.

The statement was released before the opening of regular U.S. stock trading. Chesapeake shares were down 5.3 percent as of 8:51 a.m., after rising 8 percent to $5.29 on Wednesday. The shares have advanced 18 percent this year.

Asset Sales

Lawler has been unraveling the shale empire amassed by his predecessor, the late Aubrey McClendon. At one point during McClendon’s quarter-century reign, Chesapeake controlled drilling rights across 16 million acres, an area equivalent to half of New York state. Lawler has sold gas fields, reduced the workforce and slashed spending to cope with a debt load that amounted to $8.68 billion at the end of June. The company is facing $1.38 billion in obligations that can be put to it in 2017, according to the filing.

Chesapeake increased its 2016 production guidance by 3 percent, and expects its capital spending to be in the upper end of the $1.3 billion to $1.8 billion range that it previously estimated. Next year, production is expected to drop 5 percent.

U.S. natural gas averaged $2.247 per million British thermal units in the second quarter, down 18 percent from the same period a year earlier, according to data compiled by Bloomberg. Gas comprises about 85 percent of Chesapeake’s output. Crude averaged $45.64 a barrel, down 21 percent from a year earlier.

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