Source: Chesapeake Energy Corporation.

America's second largest natural gas producer delivered strong third-quarter results before the market opened this morning. Chesapeake Energy Corporation (NYSE:CHK) not only beat earnings estimates but also exceeded its own production target.

Drilling down into the results
Chesapeake Energy reported adjusted net income of $251 million, or $0.38 per share. That was a nickel more than Wall Street was expecting, though it was less than the $282 million, or $0.43 per share, the company earned in the third quarter of last year. Cash flow came in a lot stronger as the company brought in $1.3 billion of cash in the third quarter, though that too was less than the $1.4 billion from last year's third quarter. Lower realized oil and gas prices ate into cash flow despite higher production.

Speaking of production, the company's production averaged 725,600 barrels of oil equivalent per day, or BOE/d, in the quarter. That equated to an 11% surge in production over last year's third quarter and a 5% boost from just last quarter. Natural gas liquids led the growth as production was up 14% from just last quarter while oil production rose 5% and natural gas production edged up by 3%. Overall, third-quarter production exceeded the company's own growth target and was accomplished by actually staying below its capital budget as operational efficiencies really drove strong gains.

Here's a slide from the company's latest investor presentation that details the company's financial and operational results in the third quarter.

Source: Chesapeake Energy Corporation Investor Presentation.  

A look at outlook
In September, Chesapeake Energy reached its year-end exit-rate target of 730,000 barrels of oil equivalent per day. Because of that, the company remains on pace to hit its goals for the year. As the slide below notes, the company expects production to grow by 9%-12% this year even as capital spending declines from last year.

Source: Chesapeake Energy Corporation Investor Presentation.

As that slide notes, Chesapeake Energy still expects to deliver strong cash flow for the full year despite the weakness in energy prices. One of the reasons that the company believes it can still achieve these strong results is its solid hedge position. Currently, Chesapeake Energy has 72% of its natural gas production hedged in the fourth quarter along with 64% of its oil production. That will provide the company with solid protection against commodity price volatility, especially considering the fact that 71% of the company's production is natural gas, which hasn't been as weak as oil has been over the past few months.

Investor takeaway
Chesapeake Energy delivered outstanding third-quarter results considering the weakness in oil prices. Not only did the company beat earnings estimates, but it also exceeded its own production guidance. That, along with protecting a majority of its cash flow through its hedging program, sets the company up for a solid finish to the year.