Chesapeake shares weak on 3Q loss

Associated Press

NEW YORK (AP) — Shares of Chesapeake Energy Corp. fell Friday after the oil and natural gas company said it posted a third-quarter loss on a 25 percent drop in revenue, partially as a result of lower natural gas prices and one-time charges.

THE SPARK: The Oklahoma City natural gas company lost $2.06 billion, or $3.19 per share, in the quarter that ended Sept. 30. That compares with net income of $879 million, or $1.23 per share, in the third quarter of 2011.

Excluding the special items, adjusted earnings were $33 million, or 10 cents per share. Revenue fell to $2.97 billion from $3.98 billion.

The adjusted results were slightly better than Wall Street expected. Analysts, on average, forecast earnings of 9 cents per share on revenue of $2.71 billion, according to FactSet. Such estimates typically exclude one-time items.

THE BIG PICTURE: Like other natural gas producers, Chesapeake has struggled this year amid low natural gas prices stemming from an oversupply and soft demand.

The company's daily production in the third quarter rose 24 percent from a year-ago. But it sold its natural gas at average price of $1.97 per 1,000 cubic feet, less than half the year-ago average of $4.82 per 1,000 cubic feet. Oil prices rose 10 percent to $90.79 per barrel.

Chesapeake said Thursday that it expects its natural gas production to decline 7 percent next year as it focuses on oil and gas liquids. It predicted liquids production would increase 29 percent in 2013.

The company has announced plans to sell off vast portions of its land and infrastructure. It also is trying to pay off a heavy debt load incurred in recent years as it rushed to buy land and other assets.

THE ANALYSIS: Stifel Nicolaus analyst Amir Arif backed his "Neutral" rating for Chesapeake, saying that most of the benefits from asset sales have already been priced into the stock.

Arif said the main incentives to own the stock now are the company's ongoing shift toward gas liquids and the gains it could make if natural gas prices recover. But he added that investors who want to buy shares of natural gas companies ahead of a price recovery can find better companies with cheaper share prices and less risk.

THE SHARES: Down $1.61, or 8 percent, to $18.46 in heavy afternoon trading. The stock dropped as low as $18.34 earlier in the session. Over the past 52 weeks, it's traded between $13.32 and $29.85.

Since the beginning of this year, Chesapeake shares have lost about 10 percent of their value.