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Chesapeake Energy Q1 loss narrows, may run low on cash

Published: 21:53 02 May 2012 AEST

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Chesapeake Energy Corp (NYSE:CHK) said late Tuesday that it may run short of cash next year under the weight of the lowest natural-gas prices in a decade.

The natural gas company reported a first-quarter loss of $28 million, compared with a year-earlier loss of $162 million. Excluding items, first-quarter earnings fell to 18 cents from 75 cents. Revenue rose 50 percent to $2.42 billion.

Analysts polled by Thomson Reuters had predicted a profit of 29 cents and revenue of $2.75 billion.

First-quarter natural gas production was 3.7 billion cubic feet equivalent a day, up 18 percent year-over-year and 2 percent higher than at the end of 2011.

The average realized price fell 56 percent for natural gas in the first quarter and rose 7.5 percent for oil, including realized hedging impacts, Chesapeake said in its earnings statement.

Chesapeake's CEO and co-founder Aubrey McClendon has been criticised for a controversial wells participation program that gave him stakes in thousands of oil and gas wells which he then used as collateral to borrow up to $1.4 billion for a hedge fund trading in the same commodities that Chesapeake produces.

Tuesday the company stripped McClendon of his chairmanship and reiterated that was reviewing details of the loans. He remains chief executive. Chesapeake also announced an early termination of a controversial wells-participation program.

Meanwhile, Chesapeake updated its production forecast to show a decrease over the next two years in the production of much more profitable crude oil and natural gas liquids. The latter is used to produce chemicals. The company is selling assets in crude- and NGL-rich fields to help pay down debt.

Chesapeake's updated forecast for full-year 2013 crude and NGL production comes in at an average of 57 million barrels, down from the 76 million barrels it forecast in February. At the same time, its natural gas production forecast for 2012 and 2013 remained flat at 1 trillion cubic feet a day.

Chesapeake's aggressive push in the past few years to develop gas and oil from shale rocks has helped create a U.S. energy boom and made it the second-largest natural gas producer after Exxon Mobil Corp. (NYSE:XOM).

Chesapeake said it will significantly decrease capital-expenditure levels during the remainder of 2012 and in 2013 as the company further reduces drilling activity in less profitable natural gas fields and cuts back on its acquisition of new land for drilling.

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