Chesapeake earnings clobbered by steep write-downs

By Jim Jelter, MarketWatch

Last update: 6:31 p.m. EDT May 4, 2009

SAN FRANCISCO (MarketWatch) -- Chesapeake Energy Corp. posted a nearly $6 billion first-quarter loss Monday after taking a massive write-down to reflect the steep drop in the market value of its natural gas and oil assets.

For the three months ended March 31, Chesapeake (CHK:

Chesapeake Energy Corp

News , chart , profile , more

Last: 22.81+1.92+9.17%
4:00pm 05/04/2009

Delayed quote data

Add to portfolio

Analyst

Create alert

Insider

Discuss

Financials

Sponsored by:

CHK 22.81, +1.92, +9.2%) reported a net loss of $5.75 billion, or $9.63 a share. The company posted a loss of $142 million, or 29 cents a share, in first quarter of 2008.

The results included a $6.01 billion non-cash, after-tax impairment charge to first-quarter earnings, capturing a 36% drop in natural-gas futures since the end of the fourth quarter. Another $95 million impairment went to cover "certain investments" while hedging gains totaling $519 million helped offset some of the other setbacks.

Excluding one-time items, the Oklahoma City company said earnings came to $277 million, or 46 cents a share, or 4 cents a share less than what analysts polled by FactSet Research had predicted.

Revenue for the quarter rose to $2 billion from $1.61 billion, as daily production volumes rose 5% to the equivalent of 2.37 billion cubic feet of gas from a year earlier. Ninety-two percent of Chesapeake's energy output is gas.

Chesapeake, citing the recession's impact on energy demand and continued downward pressure on prices, began shutting some of its production wells, curtailing gas production by about 200 million cubic feet a day in early March. The company cut another 400 million cubic feet per day in mid-April, adding that it anticipates keeping production cuts in place until about mid-2009.

At the same time, Chesapeake said it has trimmed its 2009 and 2010 drilling budget by $500 million.

The company is currently in talks with a private-equity investor to sell a 50% minority interest in its Barnett Shale and Mid-Continent natural-gas gathering and processing assets. It said it expects to close the deal to generate more than $550 million and close in the third quarter of 2009.

Chesapeake shares rose 9.2% ahead of the report to close at $22.82. The stock is down 57% from a year ago, lagging the 37% drop seen in the Amex Natural Gas Index (XNG:

amex natural gas index