Chesapeake reports $2 billion loss due to low natural gas prices [The Oklahoman, Oklahoma City]

Nov. 02--Chesapeake Energy Corp. on Thursday reported a third-quarter loss of $2.055 billion, or $3.19 a share, because of an impairment charge due to low natural gas prices. The company earned $879 million, or $1.23 a share, in the same quarter of last year.

After removing one-time accounting charges, Chesapeake's adjusted net income to stockholders for the just-completed quarter was $33 million, or 10 cents a share, which is in line with analysts' estimates.

CEO Aubrey McClendon highlighted Chesapeake's success at increasing its oil production.

"We are pleased to report our liquids production continues its impressive growth, led by a 96 percent year-over-year and 21 percent sequential increase in our oil production," he said in comments that accompanied Thursday's earnings release.

McClendon said Chesapeake produced only 33,000 barrels of oil and natural gas liquids a day about three years ago when the company began trying to transform its asset base, seeking more balance between liquids and natural gas.

The company now produces more than 140,000 barrels of liquids a day, despite selling a large chunk of its acreage in west Texas' oil-rich Permian Basin last month.

"We believe the company remains on target to reach our goal of 250,000 barrels per day of net liquids production in 2015," McClendon said.

Oil now represents 14 percent of the company's total production, up from 9 percent one year ago.

McClendon said higher natural gas prices, continued liquids production growth and Chesapeake's ongoing asset sales program should help the company reduce its debt and improve its financial outlook.

Meanwhile, bankers apparently are not scared off by the problems facing the cash-strapped company.

Chesapeake announced earlier Thursday it has received an unsecured $2 billion loan to repay some of its debts.

Bank of America, Goldman Sachs Bank and Jefferies Finance LLC will arrange an unsecured five-year term loan facility for Chesapeake.

The loan will help Chesapeake pay off a $4 billion term loan agreement the company received in May. It still owes about $1.2 billion on the loan, according to research by RBC Capital Markets.

"We think that with its recent sales that the financial pressure on CHK was relieved somewhat so the terms of this new loan are likely less onerous," RBC analyst Scott Hanold said. "However, market perceptions could be that CHK is unable to monetize additional assets to fully repay the prior term loan or that spending has not come down adequately."

Board Chairman Archie W. Dunham said the loan will give Chesapeake enhanced financial flexibility.

"The board and management believe current corporate loan market conditions offer attractive refinancing opportunities on favorable terms," Dunham said. "By using the proceeds of this loan to repay more costly debt and provide excess liquidity, we will enhance our financial flexibility and ensure our ability to complete our planned asset sales efficiently."

Chesapeake has spent much of this year trying to sell assets outside of its core holdings to stave off a looming funding deficit.

The company recently completed the sale of some of its acreage in Texas' Permian Basin, bringing its total yield from 2012 asset sales to about $11.6 billion. That is about 85 percent of Chesapeake's stated goal.

"We continue to believe that Chesapeake's portfolio of assets and dedicated employees are second to none, and we have confidence in the company's ability to achieve its stated financial and operational goals," Dunham said. "The board and management remain committed to reducing debt levels to $9.5 billion or below as we execute on a more focused drilling program on our existing assets."

Chesapeake had long-term debt of $15.75 billion as of Sept. 30, the company said Thursday.

McClendon said he is pleased with the progress Chesapeake has made.

"We are proud of the production growth we have achieved, particularly the growth of our oil and natural gas liquids production over this period," McClendon said.

"We also look forward to the completion of our 2012-2013 asset sales and more focused drilling activity that will lead over time to a balance between drilling capital expenditures and operating cash flow as we transition into our asset harvest strategy from our previous strategy of new play identification and capture," McClendon said.

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