Chesapeake Earnings Driven by Higher Production, Lower Costs

In the third quarter, daily production averaged 726,000 barrels of oil equivalent per day, up 11% year-over-year after an adjustment for asset sales. Daily oil production rose 5% year-over-year in the quarter, natural gas liquid (NGL) production rose 14% and natural gas production rose 3%.

Chesapeake’s average realized price per barrel of oil in the third quarter was $84.81, down from $92.09 in the third quarter a year ago and from $85.23 in the second quarter. Natural gas prices per 1,000 cubic feet fell $0.17 year-over-year and $0.36 sequentially. NGL prices were down more than $3.50 a barrel year-over-year but up nearly $2 a barrel sequentially.

Drilling and completion costs fell from $4.44 billion a year ago to $3.17 billion this year. Operating cash flow slipped from $1.38 billion a year ago to $1.18 billion in the third quarter.

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The company’s CEO said:

We have also seen a reduction in operating expenses compared to both the 2014 second quarter and the 2013 third quarter, and we continue to see dramatic improvement in capital efficiency throughout our operating areas. The company again exceeded its production growth target while operating below our capital budget. I am very proud of our results and believe they are further evidence that our strategy and commitment to becoming a top-tier E&P company will yield long-term stockholder value.

For the full year, Chesapeake estimates production adjusted for asset sales to rise by 9% to 12% year-over-year, with liquids production up 29% to 33%, oil production up 11% to 15%, NGL production up 63% to 68% and natural gas production up 4% to 6%. The daily equivalent total is expected to be 695 million to 705 million barrels a day.

That is the good news. The less-good news is that the average realized price per barrel of oil will drop by an estimated $7.31 and the natural gas price will drop by $0.19 per thousand cubic feet.

Consensus estimates for the fourth quarter call for EPS of $0.34 on revenues of $4.88 billion. For the full year, analysts are forecasting EPS of $1.68 on revenues of $20.01 billion.

All in all, the third quarter was a good one for Chesapeake. The falling price of crude and NGLs could weigh heavily on the fourth quarter though.

Chesapeake’s shares traded up more than 3% in Wednesday’s premarket, at $21.96 in a 52-week range of $16.69 to $29.92. The consensus target price for the shares was around $28.50 before the report.

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