* Drilling, completion costs drop about 30 pct
* Details lacking on planned asset sales
* Production jumps 39 pct
* Reserves fall 17 pct
By Anna Driver
Feb 21 Chesapeake Energy Corp reported
fourth-quarter profit that topped Wall Street estimates on
Thursday, helped by lower-than-expected expenses and more
profitable oil production.
The earnings report came a day after Chesapeake said an
internal investigation of the financial dealings of outgoing
Chief Executive Aubrey McClendon found no "intentional"
McClendon is stepping down on April 1 following a tumultuous
year during which the company faced a liquidity crunch and a
governance crisis. Now Chesapeake's board and big shareholders
are trying to rein in spending, pay down debt and increase
production of more profitable oil.
McClendon, who co-founded the company in 1989, was not
quoted in the earnings release and did not participate in the
company's conference call with analysts for the first time in 80
Phil Weiss, an analyst with Argus Research, said expenses in
a number of areas came in below his projections while cash flow
was higher than he anticipated.
General and administrative expenses fell to $99 million in
the quarter from $138 million a year earlier and drilling and
completion costs declined about 30 percent from a year ago.
"Costs are moving in the right direction on both general and
administrative and production expense," analysts at Tudor
Pickering Holt & Co said in a note to clients.
BACKING AWAY FROM DEBT TARGET?
While the results improved, Chesapeake is still battling low
natural gas prices this year. The company also estimates its
funding shortfall - the difference between total capital
expenditures and expected cash flow - at about $4 billion in
2013. The gap will need to be filled with up to $7 billion in
Analysts on the conference call repeatedly pressed for
details about planned asset sales, but Chief Financial Officer
Domenic Dell'Osso declined to provide specifics.
A deal involving its acreage in the Mississippi Lime
formation is expected soon, but Dell'Osso told analysts, "We
don't want to discuss a pending transaction."
The company reiterated its commitment to pay down debt, but
at the end of the quarter, it still had $12 billion in long-term
liabilities. Previously, Chesapeake said it would reduce debt to
"It appears that management may be backing away from that
target," analysts at Credit Suisse wrote in a note to clients.
Low natural gas prices also left nearly one-third of
Chesapeake's undeveloped reserves in the Haynesville shale
formation in Louisiana and the Barnett formation in north Texas
unprofitable to produce. The company proved reserves fell 17
percent from a year ago to 15.7 trillion cubic feet equivalent.
The Oklahoma City, Oklahoma, company said profit fell to
$257 million, or 39 cents per share, in the fourth quarter, from
$429 million, or 63 cents per share, in the same period a year
Excluding items, Chesapeake's profit came to 26 cents per
share. Analysts, on average, had expected 14 cents, according to
Thomson Reuters I/B/E/S.
Chesapeake said production of crude oil and natural gas
liquids rose 39 percent to 147,500 barrels per day, while
overall output rose 9 percent.
Chesapeake said much of its crude growth came from its
properties in the Eagle Ford Shale in south Texas. Oil from that
area typically fetches more favorable prices from Gulf Coast
The U.S. Securities and Exchange Commission is examining
McClendon's financial transactions, while the Department of
Justice and the attorney general in Michigan are investigating
whether Chesapeake violated antitrust laws.
A series of Reuters investigations last year triggered civil
and criminal probes into the second-largest U.S. producer of
natural gas. Big shareholders Carl Icahn and Southeastern Asset
Management took control of the board in June after McClendon was
stripped of the chairman job.
Chesapeake said on the call that the board's search for
McClendon's replacement is expected to be completed by the time
he steps down.
Shares of Chesapeake climbed as much as 3.2 percent after it
reported earnings, then sold off along with the broader market.
In mid-afternoon trading, the stock fell 1.1 percent at $20.01
on the New York Stock Exchange.