The Chesapeake Express Keeps Rolling

If the media's reports of Chesapeake Energy's (NYSE: CHK  ) first-quarter results got you worked into a lather, take a deep breath. Technically, Chesapeake did record a loss -- but this was still a terrific quarter for the company.

How's that possible? On a reported basis, Chesapeake lost $143 million, or $0.29 per share, for the quarter, versus earnings of $232 million, or $0.50 per share, for the first quarter of 2007. But stop for a moment and back out the effects of $704 million in book losses, which related to changing values of natural gas and oil futures, along with interest-rate hedges. Then pair those adjustments with $132 million in hedging gains. In that light, the company's net income was $561 million, or $1.09 a share -- 32% higher than last year's adjusted figure, and far exceeding the market's expectations.

Chesapeake's management also has announced that, in the second in a series of sales of production and reserves, it has sold about 94 billion cubic feet worth of older gas reserves in for approximately $623 million. In addition, Chesapeake will sell properties it currently owns in the Arkoma Basin Woodford Shale of Oklahoma; it hopes to fetch more than $1.5 billion from the sale.

For my money, however, the company's most impressive numbers weren't its earnings or asset sales, but its 31% spike in production. CEO Aubrey McClendon also observed on the company's conference call that Chesapeake's Barnett Shale production rose 125% year over year.

The Barnett runs through North and East Texas -- including even the Dallas-Fort Worth airport. In addition to Chesapeake, other companies active in the huge find include Devon Energy (NYSE: DVN  ) , Quicksilver Resources (NYSE: KWK  ) , and Range Resources (NYSE: RRC  ) .

If that weren't enough, Chesapeake's production rose 700% year over year in the Fayetteville Shale, an Arkansas site being worked by several players, including Houston's Southwestern Energy (NYSE: SWN  ) . With metrics like that, I'm eager to learn more about the Haynesville, a potentially massive new Louisiana play for which McClendon has high hopes.

Chesapeake's earnings releases and related conference calls are unfailingly informative, offering updates on the company's progress and the changing nature of natural gas developments in the U.S. With natural gas prices up dramatically since last summer, and Chesapeake poised to assume first place among U.S. gas producers, I urge Fools to place this amazingly successful company near the top of their energy watch lists.

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Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned. He welcomes your questions, comments, or kibitzing. The Fool has a disclosure policy.

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