Chesapeake Energy Corp. posted late Monday a net profit in the second quarter, reversing a massive year-ago loss as energy hedges worked to the company's favor.
But adjusted earnings for the quarter showed a 22% drop in profit as sharply lower natural gas prices offset gains from a 5% increase in energy production.
To help boost liquidity, reduce debt and fund capital spending, Chesapeake said it plans to sell up to $3.05 billion worth of production properties, leaseholds and other assets in 2009 and another $1.25 billion to $1.80 billion in 2010.
Including one-time items, Chesapeake /quotes/comstock/13*!chk/quotes/nls/chk (CHK 22.33, -0.03, -0.13%) reported second-quarter net income of $237 million, or 39 cents a share. The results include a $597 million gain on oil and gas hedges.
The company had a loss of $1.64 billion, or $3.16 a share, in the year-ago period, which included a $2.1 billion unrealized, non-cash mark-to-market loss from natural gas, oil and cash hedges due mainly to the steep drop in gas futures.
Excluding one-time items, adjusted net income for the three months ended June 30 fell to $377 million, or 62 cents a share, from $485 million, or 90 cents a share, a year ago.
Wall Street analysts, focusing on adjusted income, had expected the Oklahoma City, Okla.-based natural gas producer to earn 53 cents a share on $1.77 billion in revenue, according to a survey by FactSet Research.
Revenue for the quarter fell to $1.67 billion from $2.23 billion a year ago.
Chesapeake fetched on average $5.56 per thousand cubic feet of natural gas in the second quarter of 2009, down sharply from $8.18 a year ago. Gas makes up 92% of Chesapeake's overall energy output.
Given the continued decline in gas prices, Chesapeake has come under pressure to trim production costs while keeping an eye on rising inventories.
The company pumped an average of 2.453 billion cubic feet of natural gas equivalent (bcfe) per day in the second quarter, up 125 million cubic feet a day over 2.328 bcfe produced per day in the 2008 second quarter.
Looking ahead, Chesapeake said it may have to intentionally shut production along with the rest of the industry if the U.S. starts running out of natural gas storage capacity.
"The company is not currently curtailing production, but may do so again later this summer or fall as market conditions dictate," Chesapeake warned last week in a production update. "The company also expects that rising pipeline and gathering system pressures during the next few months will likely result in involuntary natural gas production curtailments across the industry."
Late last week, Chesapeake said its big four shale gas plays - Haynesville, Marcellus, Barnett and Fayetteville - continue to perform as expected.
In the face of cheaper natural gas prices, Chesapeake has been cutting costs.
The company said late last week it expects to report total drilling and net acquisition costs for the second quarter of less than $1 per thousand cubic fee equivalent.
Chesapeake shares closed ahead of the report with a 92-cent gain at $22.36. The stock is down 55% over the past 12 months, compared with a 21% decline by the NYSE Arca Natural Gas Index (XNG) over the same period.
Disclosure I am long CHK shares.
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