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Natural gas provider Chesapeake Energy Corp. (CHK - Analyst Report) reported adjusted third quarter 2013 earnings of 43 cents per share, up over threefold from 10 cents in the year-earlier quarter and a penny above of the Zacks Consensus Estimate. The outperformance came on the back of improved liquids production and higher price realization.

Total revenue improved nearly 64% to $4,867.0 million from $2,970.0 million a year ago. The top line also got the better of the Zacks Consensus Estimate of $1,781.0 million.

Operational Performance

Chesapeake's average daily production in the quarter increased 6.3% year over year to 372 billion cubic feet of natural gas equivalent (Bcfe), of which natural gas accounted for 73%. The percentage of natural gas production to total volume decreased 6% points on an annualized basis. However, natural gas production declined 9.6% to 273 billion cubic feet (Bcf) from 302 Bcf, while oil production expanded 22.2% from the year-ago level.

Natural gas equivalent realized price in the reported quarter was $4.78 per thousand cubic feet equivalent (Mcfe), up 18.3% from $4.04 in the year-earlier quarter. Average realizations for natural gas were $2.26 per Mcf compared with $1.97 per Mcf in the year-earlier quarter. Liquids were sold at $92.09 per barrel, up 1.4% from the year-ago price of $90.79 per barrel.

On the cost front, production expenses decreased 9.5% from the year-earlier level to 76 cents per Mcfe.


At the end of the quarter, Chesapeake − the largest U.S. natural gas producer after ExxonMobil Corporation (XOM - Analyst Report) − had a cash balance of $987 million. The debt balance stood at $12,736 million, representing a debt-to-capitalization ratio of 41.0%. Operating cash flow increased 42.9% year over year to $1,356.0 million.


As the company shifts its focus to more liquid-rich plays, it expects natural gas production to fall in 2013, while liquids production is expected to increase approximately 28–34% year over year.

Chesapeake expects 2013 total production in the band of 1,440–1,468 Bcfe. Natural gas is expected to contribute 1,080–1,090 Bcf to the total production. Oil production forecast has been increased to 40–42 million barrels/MMBbls from 38–40 MMBbls projected previously and NGL will likely be in the 20–21 MMBbls range.

For 2013, Chesapeake decreased its drilling, completion and leasehold capital expenditure outlook by $300 million to $5.700–$6.050 billion.  

Zacks Rank

Chesapeake holds a Zacks Rank #3 (short-term Hold rating). However, there are Zacks Ranked #1 (Strong Buy) stocks in the oil and gas industry like TransAtlantic Petroleum Ltd (TAT - Snapshot Report) and Northern Oil and Gas, Inc. (NOG - Snapshot Report) that appear attractive in the short term.

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