Chesapeake reported a first-quarter loss of $71 million, or 11 cents a share, compared with a loss of $205 million, or 32 cents, a year earlier, the company said in a statement yesterday. Excluding one-time gains and losses, per-share earnings were 18 cents, less than the 28-cent average of 34 analysts' estimates compiled by Bloomberg.
Cutting Estimates
The gas producer slashed its full-year 2012 and 2013 operating cash flow estimates by as much as 48 percent and increased the amount of assets it plans to sell. Chesapeake said it may run short of cash next year after completing more than $20 billion in asset sales to close a funding gap and pay down debt.
The asset sales won't impede Chesapeake's plan to increase oil output to 250,000 barrels a day in 2015, Chief Financial Officer Domenic Dell'Osso said during the call.
The cost to protect against losses on Chesapeake's debt jumped to the highest level since September 2009. Credit-default swaps on the company jumped 3.5 percentage points to 7.6 percent upfront as of about 3:30 p.m. in New York, according to CMA, which is owned by CME Group Inc.
McClendon agreed to a board request to terminate the so-called Founder Well Participation Program in June 2014, 18 months early, without additional compensation, Chesapeake said in a separate release yesterday. He'll retain the CEO position and won't relinquish any of the well stakes he acquired during the past 23 years, said Michael Kehs, a Chesapeake spokesman.
"They need to keep this guy on a short leash and this is the right way to do it," said Mark Hanson, an analyst at Morningstar Inc. in Chicago, said in a telephone interview yesterday.
Owning Well Stakes
As of Dec. 31, McClendon, 52, had $846 million in loans financing his participation in the well-ownership program. The program, which allowed him to own as much as 2.5 percent of almost every well the company drilled, required that he pay development costs proportionate to his stake.
As Chesapeake has grown during the past two decades, McClendon's need for cash to cover his well costs expanded along with the company's. McClendon's personal cash crunch was exacerbated by a plunge in gas prices that delayed the point when wells drilled in recent years began to turn a profit, Hanson said.
McClendon had $573 million in losses on his well stakes during the past three calendar years as lease and drilling expenses overwhelmed gas and oil revenue, the company said in a regulatory filing. During the first quarter, he piled on another $88 million in losses.
The Internal Revenue Service has been reviewing the well-investment program since March 2010 as part of audits of the company's 2008 and 2009 tax returns, Kehs said yesterday.