Chesapeake Energy Corp, the second-largest U.S. producer of natural gas, on Wednesday reported a bigger-than-expected 8 percent increase in third-quarter profit on higher output from lower-cost shale wells in Texas, Louisiana and Ohio. Shares of Chesapeake rose 6.3 percent to $22.64 in morning New York Stock Exchange trading.
The results show Chief Executive Officer Doug Lawler’s efforts to attack a bloated cost structure and improve capital efficiency are working so far. Lawler was named CEO in June 2013 after the ouster of Aubrey McClendon. “The company’s focus on expense reduction was evident both quantitatively and qualitatively, with the company announcing sharply lower well costs across all core operating areas,” Sterne Agee analyst Tim Rezvan said in a note to clients.
Profit rose to $169 million, or 26 cents per share, from $156 million, or 24 cents a share, a year earlier. Excluding costs to redeem preferred shares and other one-time items, earnings were 38 cents per share. Analysts on average had expected 33 cents, according to Thomson Reuters I/B/E/S. Oil and gas output, adjusted for asset sales, averaged 726,000 barrels of oil equivalent per day, up 11 percent from a year earlier. Analysts at energy-focused investment bank Tudor Pickering Holt had estimated Chesapeake’s third-quarter production at 704,000 boepd and characterized the results as a “strong beat” in a note to clients.
Even though output was higher, Chesapeake managed to drive down wells costs. For example in the Eagle Ford, they fell to an average of $6 million from $6.9 million. “We are gaining significant momentum in all of our operating areas where we continue to create more value with less capital,” Lawler told investors on a conference call, adding that Chesapeake is now a more profitable and less complex company. The Oklahoma City company said it still expected to spend $5 billion to $5.4 billion this year.
It plans to release the 2015 budget early next year. As of Wednesday, Chesapeake shares are down about 12 percent year to date. That compares with a 15 percent decline in the SIG Oil Exploration and Production Index.