Chesapeake slashes drilling but is poised to move if conditions improve

Chesapeake Energy is dramatically trimming its capital expenditures and holding back on its production but remains “coiled like a spring” to change course if the situation improves.

The Oklahoma City-based producer said Wednesday that its capital expenditure budget this year will be $4 billion to $4.5 billion, a 37 percent reduction from the $6.7 billion spent in 2014.

As a result, Chesapeake will be operating only 35 to 45 rigs in 2015, the least it has had in the field since 2004 and a 38 percent drop from the 64 rigs it had working in 2014. The company is aiming for a 3 to 5 percent increase in production.

But while Wall Street hammered the company because its fourth-quarter results missed analysts’ expectations, Chief Executive Officer Doug Lawler said his company, by cutting expenditures by $1 billion in 2014, ended the year with more than $4 billion of cash on hand.

He said those savings — brought about by what Lawler called the company’s “value barbarians” — along with an untouched $4 billion line of credit, makes the company more nimble and flexible to react if the market improves, or if it spies an opportunity.

“These, along with many other achievements, have helped Chesapeake to become a much stronger company,” said Lawler, who replaced company founder Aubrey McClendon as CEO in 2013. “The current commodity price environment is difficult, but our focus on value and industry-leading performance is unchanged.”

Chesapeake also will intentionally hold back on what it pumps out of the ground this year because it is the “prudent thing to do,” Lawler said. But the company is prepared to ramp up production if necessary. “The way I’d describe it is it’s like a coiled spring,” he said.

Shares of Chesapeake (ticker: CHK) slid nearly 10 percent to $17.98 following release of its fourth-quarter earnings. The company earned $586 million, or 81 cents per share. That compares with a loss of $159 million, or 24 cents per share, last year, when the company recorded a big markdown on property and equipment and other one-time expenses.

Adjusted earnings totaled 11 cents per share in the most recent quarter. Analysts expected, on average, 25 cents per share, according to Zacks Investment Research.

Total revenue climbed 11 percent to $5.05 billion.

Chesapeake, one of the top producers in the Barnett Shale, faces dozens of lawsuits in North Texas filed by landowners who allege they were cheated out of royalty income. The company also recently sued its founder and former chief executive officer, Aubrey McClendon, alleging that he stole trade secrets when he left the company and used them to start a new firm.

This report includes material from the Associated Press.

This story was originally published February 25, 2015 at 9:09 AM with the headline "Chesapeake slashes drilling but is poised to move if conditions improve."