10-QPeriod: Q1 FY2011

EXPAND ENERGY Corp Quarterly Report for Q1 Ended Mar 31, 2011

Filed May 10, 2011For Securities:EXEEXEELEXEEWEXEEZ

Summary

Chesapeake Energy Corporation (EXE) reported a net loss of $162 million for the first quarter of 2011, a significant swing from a net income of $738 million in the same period of the prior year. This loss was largely driven by a $725 million after-tax mark-to-market loss on derivative instruments, primarily related to natural gas and oil price hedging. Despite the quarterly loss, the company's operational performance showed growth. Net production increased by 20% year-over-year, driven by the "drillbit" strategy and expansion into liquids-rich plays. A major event during the quarter was the sale of its Fayetteville Shale assets for $4.65 billion, a key step in its "25/25 Plan" to reduce debt while growing production. The company also actively managed its debt, repurchasing $1.3 billion in senior and contingent convertible notes. Liquidity remains strong, supported by its corporate and midstream credit facilities and significant cash generated from asset sales.

Financial Highlights

45 data points
Beta

Revenue

$1.61B

-17.6% Gross Margin

Net Income

-$162.00M

-10.0% Net Margin

EPS (Diluted)

$-0.32

Total Assets

$34.80B

Cash & Equivalents

$849.00M

Free Cash Flow

$718.00M

Financial Statements
Beta
Revenue$1.61B
Gross Profit-$284.00M
Operating Expenses$1.90B
Operating Income-$284.00M
Interest Expense$177.00M
Net Income-$162.00M
EPS (Basic)$-0.32
EPS (Diluted)$-0.32
Shares Outstanding (Basic)634.00M
Shares Outstanding (Diluted)634.00M

Key Highlights

  • 1Net loss of $162 million ($0.32 per diluted share) for Q1 2011, compared to a net income of $738 million ($1.14 per diluted share) in Q1 2010.
  • 2Revenues decreased to $1.612 billion from $2.798 billion year-over-year, primarily due to a large unrealized after-tax mark-to-market loss on derivatives.
  • 3Completed the sale of Fayetteville Shale assets for $4.65 billion, a significant monetization that will help reduce debt.
  • 4Net production increased by 20% year-over-year to 279.6 bcfe, with liquids production showing particularly strong growth.
  • 5Cash provided by operating activities was $741 million, down from $1.183 billion in the prior year quarter.
  • 6Successfully repurchased approximately $1.3 billion in senior and contingent convertible notes as part of the "25/25 Plan" to reduce debt.
  • 7Cash and cash equivalents increased to $849 million from $102 million at the end of the previous year.

Frequently Asked Questions

The primary driver of the net loss was a substantial $725 million after-tax unrealized mark-to-market loss on the company's natural gas, oil, and interest rate derivative hedging programs. This accounting impact overshadowed the operational improvements and asset sales.

The sale of Fayetteville Shale assets for $4.65 billion generated significant cash proceeds, which the company is using to reduce its outstanding debt and fund its strategic objectives. This is a key component of Chesapeake's "25/25 Plan" aimed at lowering debt and increasing production.

The "25/25 Plan" is Chesapeake's strategic and financial plan for 2011-2012. It aims to achieve a 25% reduction in outstanding long-term debt while simultaneously growing net natural gas and oil production by 25% over the two-year period.

Chesapeake is actively managing its debt through several initiatives, including using proceeds from asset monetizations (like the Fayetteville sale) to repurchase debt, issuing new debt at potentially more favorable terms, and aiming to increase operational cash flow to reduce reliance on borrowings.