10-QPeriod: Q1 FY2009

EXPAND ENERGY Corp Quarterly Report for Q1 Ended Mar 31, 2009

Filed May 11, 2009For Securities:EXEEXEELEXEEWEXEEZ

Summary

Chesapeake Energy Corporation (EXE) reported a significant net loss of $5.74 billion for the first quarter of 2009, primarily driven by a substantial non-cash impairment charge of approximately $6.0 billion. This impairment was largely a consequence of a sharp decline in natural gas prices during the quarter. Despite the loss, total revenues increased to $1.995 billion from $1.611 billion in the prior year period, reflecting higher production volumes. The company's liquidity remains supported by its revolving credit facilities and a recent issuance of senior notes. However, the balance sheet shows a notable decrease in cash and cash equivalents, from $1.749 billion at the end of 2008 to $83 million at the end of March 2009. Operationally, Chesapeake continues to manage production in response to low commodity prices, curtailing output as necessary. The company also highlighted strategic initiatives aimed at strengthening its balance sheet and liquidity, including planned asset monetizations and a focus on growing its reserve base. Investors should closely monitor commodity price trends, the company's ability to manage its debt obligations, and the effectiveness of its strategic asset sales and production management in navigating the challenging market conditions.

Financial Highlights

28 data points
Beta

Revenue

$2.00B

-453.8% Gross Margin

Net Income

-$5.74B

-287.7% Net Margin

EPS (Diluted)

$-9.63

Cash & Equivalents

$83.00M

Free Cash Flow

$1.26B

Financial Statements
Beta
Revenue$2.00B
Gross Profit-$9.05B
Operating Expenses$11.05B
Operating Income-$9.05B
Net Income-$5.74B
EPS (Basic)$-9.63
EPS (Diluted)$-9.63
Shares Outstanding (Basic)597.00M
Shares Outstanding (Diluted)597.00M

Key Highlights

  • 1Reported a net loss of $5.74 billion for Q1 2009, significantly impacted by a $6.0 billion non-cash impairment charge due to lower natural gas prices.
  • 2Total revenues increased to $1.995 billion, up from $1.611 billion in Q1 2008, driven by higher production volumes.
  • 3Cash and cash equivalents decreased significantly from $1.749 billion at year-end 2008 to $83 million at the end of Q1 2009.
  • 4Company implemented production curtailments due to low wellhead prices.
  • 5Completed a $1.346 billion debt repayment using proceeds from a new 9.5% senior notes issuance.
  • 6Capital expenditures are being reduced, with plans for asset monetizations to further strengthen liquidity.
  • 7Average realized natural gas price (excluding derivative impacts) fell to $6.05 per Mcf from $9.05 per Mcf in the prior year period.

Frequently Asked Questions

The primary reason for the $5.74 billion net loss was a significant non-cash impairment charge of approximately $6.0 billion. This impairment was triggered by a sharp decline in natural gas prices during the quarter, which reduced the estimated value of the company's natural gas and oil properties below their capitalized costs.

The company's cash and cash equivalents saw a substantial decrease from $1.749 billion at the end of 2008 to $83 million by March 31, 2009. To manage liquidity, Chesapeake is curtailing production, has recently issued $1.346 billion in senior notes to repay debt, and plans several asset monetizations. The company also has access to its $3.5 billion revolving credit facility and a $460 million midstream revolving credit facility.

Chesapeake has curtailed approximately 400 million cubic feet (MMcf) per day of its natural gas production due to continued low wellhead prices. The company is closely monitoring market conditions and will adjust production levels accordingly. The sharp decline in natural gas prices has also led to a significant downward revision in reserve estimates due to the full-cost accounting ceiling test.

Chesapeake has a substantial debt load, with total debt representing 52% of its total capitalization at the end of Q1 2009. The company recently issued $1.346 billion in senior notes to repay a portion of its revolving credit facility borrowings. No scheduled principal payments are due on its senior notes until 2013. The company's strategy includes asset monetizations and growth in its reserve base to strengthen its balance sheet.