Chesapeake Energy on track to make more cash than it spends for first time in decade

Chesapeake Energy Corp. is on track to make more cash than it spends for the first time in more than a decade as Chief Executive Officer Doug Lawler’s cost cuts take hold.

Chesapeake raised its full-year estimate of cash flow to $5.8 billion to $6 billion today, a 13 percent increase at its midpoint from the previous forecast. When combined with asset sales that have already topped $900 million this year, the proceeds will more than cover spending for the first time since 2001.

Lawler, who replaced Chesapeake founder Aubrey McClendon 11 months ago after an investor revolt, increased the cash-flow estimate after boosting output to a first-quarter record and shaving 8 percent off the company’s cost to extract the equivalent of a barrel of crude.

Another infusion of cash is expected in coming months when Chesapeake plans to sell or spin off a rig business that RBC Capital Markets LLC analysts said could be worth $1.9 billion.

“I could not be more excited about the progress we’re making,” Lawler said during a conference call with analysts and investors today.

First-quarter net income climbed to $425 million, or 54 cents a share, from $58 million, or 2 cents, a year earlier, the Oklahoma City-based company said. Per-share profit excluding one-time items was 11 cents more than the 48 cent average of 29 analysts’ estimates compiled by Bloomberg.

Production Increase

Chesapeake rose 1.4 percent to $28.75 at 10:37 a.m. in New York. Earlier, the shares rose as much as 4.1 percent for the biggest intraday increase since March 27.

Record-breaking cold weather across parts of the U.S. that boosted demand for gas to run furnaces was a boon to Chesapeake, which pumps more of the fuel than any domestic producer except Exxon Mobil Corp. Chesapeake’s output rose 1.8 percent to the equivalent of 675,556 barrels a day during the January-to-March period from a year earlier.

The company spent $4.73 to produce each barrel of production, down from $5.14 during the first quarter of 2013, according to the statement. Chesapeake’s output was 71 percent natural gas, with the rest comprised of crude and so-called gas liquids including propane.

U.S. gas fetched an average price of $4.72 per million British thermal units during the first three months of this year, a 36 percent increase from a year earlier, according to data compiled by Bloomberg.

Chesapeake raised $925 million so far this year from sales of assets including equipment used in pipeline networks, real estate and an equity stake in Chaparral Energy, according to the statement. The company said it will provide details on additional planned asset sales at a day-long presentation to analysts on May 16, the first such event since 2010.

Activist Investors

Lawler, who was recruited to run Chesapeake from Anadarko Petroleum Corp. by investors Carl Icahn and O. Mason Hawkins, last month told a Rotary Club lunch crowd that the company may expand overseas in coming years.

When asked about those remarks during today’s conference call, Lawler said he expects robust foreign demand for Chesapeake’s shale-drilling expertise as exploration of those formations outside the U.S. expands.

“We’ve got a lot of wood to chop” in the U.S., Lawler said today. “But the Chesapeake geoscience talent, the company’s speed, operational capabilities and expertise are outstanding. Chesapeake has that expertise and could be part of” foreign shale ventures.