On Monday, May 4, CHK reports a net loos of $5.75 billion (-9.63 per fully diluted common share) due to a larger than expected impairment charge of $6 billion on oil and natural gas properties. This loss is a result of a 36% decrease in the NYMEX price of natural gas during the quarter. The poor performance of natural gas throughout the quarter was due primarily to slumping industrial demand for the commodity.
In order to counteract the continuing weak demand for natural gas, CHK announced on April, 16 that they will decreas daily production by another $400 mmcf (13%). Chesapeak's proven natural gas and oil reserves were 11.9 tcfe, a decline of 2% from the beginning of the year. The company also cut their capital expenditures by another $500 million. The company is currently documenting an agreement to sell certain Chesapeake-operated long-lived producing assets in South Texas in its fifth volumetric production payment transaction in order to help cover budgeted capex and reduced borrowing under their revolving credit facility.
Despite the current negative enviornemnt surrounding natural gas producers, I remain optimistic about the future of the commodity as an alternative to foreign oil. Prices have not been this low since 2002, and when demand turns around, CHK remains well positioned to capitalize. We maintain a hold on Chesapeake Energy.