By Erin Ailworth
Chesapeake Energy Corp. shares plunged 10% Wednesday as the U.S.
shale driller missed earnings expectations and told investors that
it would scale back its rig operations to 2004 levels.
Chesapeake is the latest energy company to cut back in light of
falling crude-oil and natural gas prices. The company will reduce
capital expenditures by 37% this year to between $4 billion and
$4.5 billion. It will also drop the number of rigs drilling for new
oil and gas finds by about 38% to between 35 and 45 rigs.
During the fourth quarter of 2014 Chesapeake pumped more oil and
gas, but higher production couldn't offset the lower prices it
fetched for fuel. The company earned a profit of $639 million, or
81 cents a share, on revenue of $5.05 billion. But excluding
extraordinary items earnings were 11 cents per share, and analyst
polled by Thomson Reuters were expecting them to be around 24 cents
a share.
Chesapeake has struggled to recover from years of aggressive
spending as the land-grab approach the company pioneered for oil
and gas drilling meant it spent more than its wells generated in
profit. But under Doug Lawler, who joined as chief executive in
June 2013, the company has been selling assets to pay down its
debts.
Mr. Lawler told analysts and investors on a call to discuss
earnings that Chesapeake's team of "value barbarians" have striven
to bring the company's costs in line after years of overspending.
Even so, the company will continue to outspend its cash flow in
2015, although that gap has been shrinking in recent years.
In June, the company completed its spinoff of its oil-field
service business into a separate, publicly traded company now known
as Seventy Seven Energy Inc. In December, Chesapeake completed the
sale of a large slice of its gas business in the Marcellus and
Utica shale formations in West Virginia and southwest Pennsylvania
to Southwestern Energy Co. for $5.38 billion.
Chesapeake is dialing back its remaining Marcellus gas
operations in the face of extremely low prices. Gas in the region
has sold for less than $1 per thousand cubic feet at times this
winter. The company shut in 250 million cubic feet a day of
Marcellus gas in December and expects that curtailment to stay in
place for all of 2015. The company will only run one drilling rig
in the area this year, down from five rigs operating there last
year.
Analysts repeatedly questioned executives Wednesday about the
company's plans for the $5 billion it made on that deal, and Mr.
Lawler said the company could use the money to pay down debt or
fund its exploration program or acquire new properties or another
company.
"As I've told our employees many times, the transformation that
has occurred at Chesapeake over the past 18 months has prepared us
for such a time as we see today," he said.
Angela Chen contributed to this article.
Write to Erin Ailworth at Erin.Ailworth@wsj.com
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