Seeking Alpha
Profile| Send Message|
( followers)  

By Brianna Panzica

The world's oil and gas giants have struggled in the third quarter of this year.

Royal Dutch Shell (NYSE:RDS.A), for example, reported an increase in third quarter profits, but the company struggled when it came to shale gas.

Chevron Corp. (NYSE:CVX) struggled with low oil and gas prices as well as a refinery fire, all of which cause huge setbacks in net income.

And Exxon Mobil (NYSE:XOM), the world's biggest energy company, suffered losses for the same reasons – lowered prices and the subsequent result of closed refineries.

But Chesapeake Energy (NYSE:CHK) may have suffered the worst in the third quarter.

Already struggling from a heavy funding shortfall and a scandal surrounding CEO Aubrey McClendon, the company reported a net loss of $2.01 billion, or $3.19 a share.

Just a year ago, in the third quarter of 2011, Chesapeake had reported a profit of $922 million, or $1.23 a share. But this year has thrown more obstacles in the way than the company could handle.

The earnings report, released Thursday, showed the company has $16 billion in long-term debt. Meanwhile, the company's 2012 drilling budget was raised to $8.75 billion – a 9.4 percent increase.

Shares plummeted 8.62% on Friday afternoon to $18.34.

The company's shares have lost as much as 17.09% this year, hitting a 2012 low of $13.55 in mid-May.

Earlier this year, Chesapeake announced the plan to sell $19 billion in assets by the end of next year to lessen the burden of its funding shortfall. Of that, $14 billion was to be sold by the end of this year. The sales, however, have fallen short.

From Reuters:

“We remain absolutely committed to reducing our net long term debt to no more than $9.5 billion and if not achieved December 31,2012, we expect to accomplish this number one goal in early 2013,” CFO Domenic Dell'Osso said during a conference call to discuss the company's third-quarter earnings.

One of the deals Chesapeake was considering was finding an Asian partner for a joint venture in Oklahoma and Kansas' Mississippi Lime formation.

But after several foreign companies had issues securing approval for U.S. projects, Chesapeake changed tactics and is now considering other partnerships or a total sale of the region.

Chesapeake is also securing a sale of midstream assets to Global Infrastructure Partners for $2.7 billion, though that deal may not close before the end of the year.

The company acquired a loan worth $2 billion, it announced Thursday, to help it pay off a $4 billion term loan agreement on which it owes $1.2 billion.

The company's one shining light was its liquids production, which has jumped in three years from 33,000 barrels per day to 140,000 barrels per day.

From Businessweek:

“We are pleased to report our liquids production continues its impressive growth, led by a 96 percent year-over-year and 21 percent sequential increase in our oil production,” he [McClendon] said in comments that accompanied Thursday's earnings release.

But production had also fallen in the wet, southwestern region of the Marcellus Shale, where Chesapeake decreased its rig count to a mere three despite reports that it would only decrease it to six.

And yet the company is not giving up.

From Businessweek:

“We also look forward to the completion of our 2012-2013 asset sales and more focused drilling activity that will lead over time to a balance between drilling capital expenditures and operating cash flow as we transition into our asset harvest strategy from our previous strategy of new play identification and capture,” McClendon said.

It's going to take Chesapeake a lot to get back on its feet. But despite poor earnings and major losses, the company is still trading well above its 52-week low of $13.32. And if natural gas prices rise again, something a cold winter could cause, the company will have reason to celebrate.

Source: Chesapeake Reports Major Q3 Losses