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2006-07-28 :: Energy Earnings Continue to Surprise Market

Below is a story from MarketWatch detailing Chesapeake Energy’s earnings for the most recent quarter.  Energy earnings, particularly companies focusing on US, Canada, and Gulf of Mexico, are coming in well ahead of analyst projections.  Once the current soft spot subsides, the stock prices on these companies should move significantly higher. 

SAN FRANCISCO (MarketWatch) — Chesapeake Energy Corp. posted an 86% jump in second-quarter profit Thursday, built on an aggressive drilling and gas field acquisition program that boosted the company’s energy output by 45%.
Chesapeake, headquartered in Oklahoma City, Okla., reported after the closing bell second-quarter net income rose to $360 million, or 82 cents a share, from $194 million, or 52 cents a share, a year ago.
Revenue for the three months ended June 30 totaled $1.58 billion, up 50% from $1.05 billion a year ago.
Analysts polled by Thomson First Call expected Chesapeake to hand in earnings of 72 cents a share on $1.42 billion of revenue.
“The company delivered top-tier organic production growth and impressive profit margins as strong oil and natural gas price realizations far exceeded modest cost inflation,” Chesapeake Chief Executive Officer Aubrey McClendon said in a statement.
Daily production for the second quarter averaged the equivalent of 1.57 billion cubic feet of natural gas, up 26% from the 1.24 bcf daily average pumped in the second quarter of 2005.
About 45% of the year-on-year increase came from the company’s own drilling activities and 55% from acquisitions.
Since the start of the year, the company has raised its proven reserves by 7.7% to the equivalent of 8.1 trillion cubic feet of gas, managing a reserve replacement rate of 308%.
“We have also opportunistically hedged service costs and a substantial portion of our anticipated production through 2008 at exceptional prices in order to ensure strong profitability,” McClendon said.
The company, primarily a natural gas producer, said it has hedged fully 93% of its third-quarter gas production at an average price on the New York Mercantile Exchange of $8.85 per million British thermal units.
About 9% of the company’s overall energy output is oil, which it has hedged in the third quarter on NYMEX at an average price of $64.83 a barrel.
During the second quarter, the company’s realized price for natural gas, including the impact of derivatives gains and losses, was $8.04 per thousand cubic feet. The average realized price for crude, using the same formula, was $58.80 a barrel.
Earlier Thursday J.P. Morgan raised its rating on Chesapeake to overweight from neutral, citing the company’s protection from risks in the near-term natural gas market and its attractive valuation.
The company is also frequently cited by analysts as a good long-term investment among exploration and production companies in North America.

Yesterday the market opened up, particularly energy companies extending the move up from the bottom, but turned around near the end of the day for a loss as the traders in New York got spooked by some economic news.  This is going to happen in a market that is as skittish as this one is.

Hang in there and we’ll work our way through the soft spot.