Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Chesapeake Dwarfs Big Oil in the U.S.

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

There are at least two ways to look at Chesapeake Energy's (NYSE: CHK  ) first quarter results: You can focus on the loss related to hedging, which I view as superficial and not given to understanding America's most active oil and gas producer. Or, using what I call a 30,000-foot perspective, I will show you an innovator with constant new approaches to plumbing the domestic energy scene.

Just to cover all bases, however: The company reported a net loss of $205 million, compared with year-ago income of $732 million (when the quarter's accounting effects from a $725 hedging loss are taken into consideration). After backing out those effects, Chesapeake earned $518 million, or $0.75 a share, beating the analysts' consensus by $0.04.

Chesapeake has played a major role in changing the U.S. oil and gas picture by assuming a point position in unconventional oil and gas plays like the Barnett Shale, the Haynesville Shale, the Marcellus Shale, and the Eagle Ford play. Along with companies like XTO -- now a unit of ExxonMobil (NYSE: XOM  ) -- and Devon Energy (NYSE: DVN  ) , it has made those unconventional plays virtual household names.

Since the beginning of the last decade, Chesapeake has accumulated the industry's biggest U.S. land position at 14.3 million net acres, along with 28.3 million acres of 3-D seismic imaging. And with a total participation of a whopping 805 gross wells during the past quarter alone, it also has become the industry's most active company in the quest for domestic hydrocarbons.

But given the widening gap between the value of liquids and gas reserves, management is executing a sharp turn toward increased production of the former. While admittedly from a lower base, its liquids production has risen by 56% year-over-year, versus a 16% increase in natural gas output.

In an effort to achieve maximum operating efficiency, McClendon and his team have developed a vertically-integrated structure at Chesapeake, wherein the company has invested in drilling rigs, compression equipment, and other aspects of exploration and production normally left to oilfield services companies. Nevertheless, as he observed, "…if you strip away our internally provided services, I still think we are the largest U.S.-based customer for service companies…"

At the same time, management is moving aggressively toward completing its objective of a "25/25 Plan," which targets a 25% reduction in debt and a 25% hike in production by the end of next year. As part of the effort, they recently sold assets in Niobrara Shale to China's CNOOC (NYSE: CEO  ) and assets in the Fayetteville Shale to BHP Billiton (NYSE: BHP  ) (ASX: BHP.AX). The nearly $1.9 billion in proceeds from the two transactions will be applied to debt reduction this month. As McClendon pointed out at the outset of the call, "I hope you noticed that we have already reached our 25% debt reduction goal."

I'm waving a flag and recommending that Fools watch Chesapeake closely, both for its own sake and for that big picture understanding of trends in the energy scene. Adding the company to a free Watchlist will help you immensely with that process. 

The Fool owns shares of Exxon Mobil. Alpha Newsletter Account, LLC owns shares of Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Fool contributor David Lee Smith doesn't own shares in any of the companies named in this article. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 03, 2011, at 9:21 PM, trin6810 wrote:

    Chesopeake 118 violations in PA with 143 wells - great company - first he loses his bet with stock and now hedging - he can't get it right - hope like heck we keep him out of NY - this whole industry needs to be wikileaked.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1487469, ~/Articles/ArticleHandler.aspx, 10/24/2016 8:14:36 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:00 PM
CHK $6.36 Down -0.32 -4.79%
Chesapeake Energy CAPS Rating: ***
BHP $34.97 Up +0.01 +0.03%
BHP Billiton CAPS Rating: ***
CEO $136.75 Down -0.43 -0.31%
CNOOC CAPS Rating: ***
DVN $41.72 Down -0.97 -2.27%
Devon Energy CAPS Rating: ****
XOM $86.91 Up +0.29 +0.33%
ExxonMobil CAPS Rating: ****