Chesapeake says to raise 2018 output on lower spending, shares jump

By Anirban Paul

(Reuters) – Chesapeake Energy Corp (N:) said it expects production to keep rising this year, despite a 12 percent cut in spending, sending the U.S. producer’s shares up nearly 23 percent on Thursday.

Like its peers in the energy industry, Chesapeake faces pressure from investors to increase production on minimal spending, and has cut costs and jobs to manage a balance sheet saddled with nearly $10 billion in debt.

The company, which is selling assets worth $2 billion to $3 billion, said it expects production to rise by about 3 percent in 2018 after adjusting for asset sales.

While that growth rate is the same as last year, it will come off a planned capital budget of $1.96 billion to $2.38 billion for 2018, which at the mid-point is 12 percent lower than last year.

The Street should “perceive this as a positive given 2018 spending is decreasing, while production still increasing,” SunTrust Robinson analyst Neal Dingmann said.

Since prices crashed in 2014, U.S. energy producers have been curbing costs, while aiming to boost output through new technology such as processing seismic data better, improving reservoir models and drilling more efficient wells.

Chesapeake said it expects new wells to be “a lot more economic” as it tests new well designs.

“We will continue to drive costs out of our operations, improve margins and utilize advancing technologies to create value across our portfolio,” Chief Executive Officer Robert Lawler said on a conference call.

Chesapeake is focusing on the Powder River Basin across Montana and Wyoming to tap gas reserves. It also operates in the Eagle Ford Shale in Texas, Utica Shale in Ohio and Anadarko Basin in Oklahoma.

Higher production and averaged realized prices, and a near 9 percent drop in costs, helped Chesapeake’s fourth-quarter profit top analysts’ expectations.

Chesapeake’s net income was $309 million, compared with a year-ago loss of $740 million.

Its adjusted profit of 30 cents per share beat analysts estimate of 24 cents, according to Thomson Reuters I/B/E/S.

Chesapeake’s average production rose 3.3 percent to 593,200 barrels of oil equivalent per day. Average sales price rose 20.2 percent to $24.41 per barrel of oil equivalent.

The company’s shares were up 22.2 percent at $3.22 in late morning trading, set for their biggest one-day percentage gain in nearly two years.

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