Chesapeake Energy Corp.'s stock remains undervalued but its price should rise during the coming months, the independent natural gas and oil company's CEO said Tuesday.
On Monday, the Oklahoma City-based company reported a $205 million loss during the first quarter, citing the marking down of the value of derivatives contracts used to guard against rising energy costs. Excluding special items Chesapeake earned $518 million, or 75 cents a share, during the quarter, which was above analysts' expectations.
CEO Aubrey McClendon didn't mention those numbers in a conference call with analysts Tuesday, instead focusing on what he said are three "significant achievements" by the company in 2011.
The first was reaching a goal of reducing debt by 25 percent long before a deadline set for the end of 2012, he said. The company wants to cut its debt by selling assets. On March 31, Chesapeake closed on the sale of its Fayetteville Shale assets in Arkansas to BHP Billiton Ltd. of Australia, which netted Chesapeake about $4.65 billion.
"Now we just need to maintain where we are from now on, and that is our plan," McClendon said.
He also said Chesapeake has built an internal oilfield service company "as a way to counter oilfield inflation and enhance the efficiency of our operations." Chesapeake thinks the enterprise is worth at least $7 billion and plans are for Chesapeake to seek a partial monetization of it in 2012.
Chesapeake also has acquired strong leasehold positions in what McClendon said are two potentially liquids-rich plays, in the Utica Shale in far western Pennsylvania and eastern Ohio and in the Mississippi Carbonate play in northern Oklahoma and southern Kansas. He said Chesapeake expects to develop joint-venture projects in both those plays this year, and that the company's positions in the plays could be worth $23 billion.
But, McClendon complained, that potential value isn't reflected in Chesapeake's stock price. Chesapeake's stock was at $31.89, down $1.34, in morning trading Tuesday.
"We are highlighting more than $30 billion of potential value creation in this quarter alone," McClendon said. "Given where our stock is valued at pre-opening today, I guess I can say no good deed goes unpunished. And also I'm guess I'm glad that we didn't highlight, say, $60 billion in possible value creation this quarter. Our stock might be down even more."
Chesapeake's stock rose as high as $74 in 2008 before plunging to $9.84 that December. In October 2008, McClendon was forced to sell 31.5 million shares _ substantially all of his nearly 6 percent stake in the company _ to meet margin loan calls in a $570 million fire sale. The company's stock has risen since then to its current level.
Ticonderoga Securities analyst Daniel Pratt noted that while Chesapeake's proceeds from the Fayetteville Shale sale were used to pay down debt, "the company raised its 2011 budget for drilling and completion expenditures by roughly 10 percent" as its first-quarter spending rate was higher than anticipated.
"We would expect a negative reaction from the market, given that (Chesapeake) is in the process of restructuring its balance sheet and paying down debt," Pratt said.