Chesapeake: When Hedging Pays Off (CHK)

By Douglas A. McIntyre Updated Apr 27, 6:46PM EDT · Published Oct 31, 7:51AM EDT

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Chesapeake_logo Predictably, as prices for crude oil and natural gas have fallen over the past two months or so, commodity hedges that were once underwater have popped to the surface again. Chesapeake Energy Corp. (NYSE:CHK) offered a prime example in its third quarter report issued after the market closed yesterday.

Chesapeake reported net income of $3.282 billion (EPS of $5.61) onrevenues of $7.491 billion. Income included a non-cash, mark-to-marketgain on commodity hedges of $2.846 billion. Excluding that and certainother items, the company’s net income totaled $486 million (EPS of$0.85). Analysts had expected EPS of $0.89 on revenues of $2.57 billion.

Natural gas production was essentially flat sequentially, and theaverage realized gas price per thousand cubic feet dropped by $0.16compared with the previous quarter, but increased $0.61 year-over-year.Crude oil production was also flat and pricing also followed the samepattern.

During the third quarter, Chesapeake sold about $7.5 billion worth ofits assets, and grew its cash on hand from $1 million to nearly $2billion. The company reduced its natural gas production projections forthe current quarter and noted that it expects to sell assets valued atabout $2.7 billion in each of 2009 and 2010.

Chesapeake’s share price closed at $22.07 yesterday, down about 70%from its 52-week high. Maybe piling up cash will improve the priceenough to put some of the company’s stock back into the hands of itsCEO.

Shares are indicated up almost 2% at $22.49 right before the open.

Paul Ausick
October 31, 2008

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.