Chesapeake Energy Corporation Reports Financial and Operational Results for the 2008 Second Quarter
Chesapeake Energy Corporation (NYSE:CHK) today announced financial and operating results for the 2008 second quarter. For the quarter, Chesapeake’s adjusted net income to common shareholders was $479 million ($0.89 per fully diluted common share) and adjusted ebitda was $1.435 billion, increases of 40% and 23%, respectively, over the 2007 second quarter. Chesapeake’s adjusted net income to common shareholders excludes the following items that are typically not included in published estimates of the company’s financial results by certain securities analysts: an unrealized noncash after-tax mark-to-market (MTM) loss of $2.085 billion from future period natural gas, oil and interest rate hedges primarily as a result of higher natural gas and oil prices as of June 30, 2008 compared to March 31, 2008; and a reduction of net income available to common shareholders of $43 million resulting from exchanges of the company’s preferred stock for common stock that reduced future preferred stock dividend payment requirements.
Including the items noted above, Chesapeake reported a net loss to common shareholders during the quarter of $1.649 billion (a loss of $3.17 per fully diluted common share), operating cash flow of $1.443 billion (defined as cash flow from operating activities before changes in assets and liabilities) and negative ebitda of $1.971 billion (defined as net income (loss) before income taxes, interest expense, and depreciation, depletion and amortization expense) on negative revenue of $455 million and production of 212 billion cubic feet of natural gas equivalent (bcfe).
Recent extreme volatility in natural gas and oil prices has created wide swings in the MTM value of Chesapeake’s hedges. For example, from June 30, 2008 to July 25, 2008, the MTM value of the company’s hedges moved in the company’s favor by approximately $4.7 billion. Should prices on September 30, 2008 be the same as prices on July 25, 2008, substantially all of the 2008 second quarter unrealized MTM loss would be reversed and reported as a unrealized MTM gain in the 2008 third quarter. Because of such pricing volatility and in order to secure strong and predictable profit margins, Chesapeake prefers to hedge much of its exposure to natural gas and oil price swings on a rolling 24-month basis. Chesapeake’s hedging agreements have been structured so that cash margin requirements are generally not required by the 22 counterparties it uses to hedge its production.
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