* 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" wrongdoing.
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 quarters.
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 asset sales.
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 $9.5 billion.
"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 earlier.
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 buyers.
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.