10-QPeriod: Q2 FY2010

EXPAND ENERGY Corp Quarterly Report for Q2 Ended Jun 30, 2010

Filed August 9, 2010For Securities:EXEEXEELEXEEWEXEEZ

Summary

Chesapeake Energy Corporation (EXE) reported its second-quarter 2010 financial results on August 9, 2010. The company demonstrated a significant turnaround from the prior year, reporting net income of $255 million for the quarter, a notable increase from the $243 million in the same period of 2009, and a substantial improvement from the prior year's net loss of $5.5 billion for the six-month period. Total revenues increased to $2.01 billion for the quarter and $4.81 billion for the six months, driven by higher production volumes and improved average sales prices for both natural gas and oil. The company's strategic shift towards a more liquids-rich asset base is evident, with increased capital allocation towards these plays. Financially, Chesapeake has made strides in debt reduction, issuing preferred stock to raise approximately $2.56 billion and using these proceeds to redeem senior notes and repay credit facilities. The company's liquidity remains strong, supported by its revolving credit facilities and cash on hand. Management is focused on achieving an investment-grade credit rating by the end of 2012. Despite the positive trends, the company faces ongoing risks related to commodity price volatility and its significant debt levels.

Financial Highlights

47 data points
Beta

Revenue

$2.01B

22.2% Gross Margin

Net Income

$255.00M

12.7% Net Margin

EPS (Diluted)

$0.37

Total Assets

$32.17B

Cash & Equivalents

$601.00M

Free Cash Flow

$1.79B

Financial Statements
Beta
Revenue$2.01B
Gross Profit$447.00M
Operating Expenses$1.56B
Operating Income$447.00M
Interest Expense$190.00M
Net Income$255.00M
EPS (Basic)$0.37
EPS (Diluted)$0.37
Shares Outstanding (Basic)631.00M
Shares Outstanding (Diluted)635.00M

Key Highlights

  • 1Net income turned positive, reaching $255 million for the quarter and $993 million for the six months, a substantial improvement from the prior year's net loss.
  • 2Total revenues increased by approximately 30% year-over-year for the quarter ($2.01 billion vs. $1.67 billion) and 31% for the six months ($4.81 billion vs. $3.67 billion), driven by higher production and prices.
  • 3The company generated strong operating cash flow of $2.978 billion for the six-month period.
  • 4Chesapeake significantly strengthened its balance sheet by issuing $2.56 billion in preferred stock and using the proceeds to reduce debt.
  • 5Strategic shift towards liquids-rich plays is accelerating, with increased capital allocation planned for these areas.
  • 6Production volumes increased by 14% for the quarter and 12% for the six months compared to the prior year periods.
  • 7The company has set a target to achieve investment-grade credit metrics by the end of 2012.

Frequently Asked Questions

Chesapeake Energy Corporation reported net income of $255 million for the three months ended June 30, 2010, and $993 million for the six months ended June 30, 2010. This represents a significant improvement compared to the prior year, which saw a net loss of $5.5 billion for the six-month period. Revenues also increased, reaching $2.01 billion for the quarter and $4.81 billion for the six months.

Chesapeake has actively managed its debt and liquidity. During the quarter, the company issued $2.56 billion of preferred stock, using the proceeds to redeem senior notes and repay credit facilities. As of June 30, 2010, the company had $1.051 billion of borrowing capacity available under its corporate credit facility and $90.6 million under its midstream credit facility, indicating strong liquidity.

Chesapeake is strategically shifting its focus towards liquids-rich plays, accelerating investment in these areas due to the price gap between natural gas and oil. The company plans to increase liquids production and revenue significantly in the coming years. This strategy involves acquiring leasehold in new liquids-rich plays and subsequently monetizing interests through joint ventures.

The company is involved in several legal proceedings, including a class action lawsuit related to a past stock offering and derivative actions. While the outcomes are difficult to predict, management currently believes that no pending litigation is likely to have a material adverse effect on the company's financial position, results of operations, or cash flows.