Friday, February 19, 2010

CHK Q4 2009 Earnings - Dan Goldfarb

Chesapeake Energy Corporation narrowed its fourth-quarter net loss to $530 million, or 84 cents a share, compared with a loss of $1 billion, or $1.74 a share, in a year-earlier quarter. Adjusted fourth-quarter income was $490 million, or 77 cents a share. Revenue declined over 25% to $2.22 billion from $2.98 billion a year ago. Adjusted fourth-quarter income was $490 million, or 77 cents a share. Analysts were looking for adjusted earnings of 68 cents a share on $1.86 billion in revenue.

On the operational side, Chesapeake 4th quarter production hit a new quarterly record with a daily average of 2.618 Bcfe and a new annual record with a daily average of 2.481 Bcfe (13% and 8% growth year over year). This has led the company to increase their 2010 and 2011 production forecast for the second time in six weeks. The company is also anticipating a 50% increase in their liquid production over the next two years. In 2009 Chesapeake also increased reserves by over 25% leading the company to increase daily production goals to 3.5-3.7 Bcfe by year end 2012.

Over the last year, Chesapeake had increased their exposure to the domestic shale plays (from 4 to 6 primary locations) as well as their physical ownership of land in some of those areas. It is estimated that their Andarko and Northeastern PA (just 1 of those 6 locations) leaseholds alone contribute a value of $8 per share. This is an example of the increased asset base Chesapeake has assembled over the last few years.

Given Chesapeake’s increased production outlook and ongoing drilling success despite continued poor economic conditions, Chesapeake Energy is a buy/hold. Their increased exposure to the US shale plays and strategic purchases/acquisitions give Chesapeake huge earnings potential growth and great value in the near term.

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