Chesapeake Energy Corporation (CHK)’s Production Mix Is Moving Towards Liquids

Both Marathon and Anadarko were far less exposed to the US dry natural gas market than Chesapeake. As a result came through the spring 2012 crash in natural gas prices with far less injury. For the entire year of 2012 Chesapeake reported a loss of $940 million or $1.46 per share. Although 2012 was hardly a banner year for Marathon and Anadarko, they both finished 2012 in the black. Anadarko reported net income of about $2.38 billion from $13.41 billion in revenues. Rocksteady Marathon Oil lived up to its name and reported its 17th consecutive year of profits with $1.58 billion from $16.22 billion in revenues.

Transport capacity and NGL demand still a concern

During the Q4 earnings call the COO of Chesapeake, Steve Dixon, mentioned a reduction at Eagle Ford of about 2,500 barrels per day during Q4 due to inadequate processing capacity at a nearby plant run by Regency Energy Partners LP (NYSE:RGP). Assuming Chesapeake’s competitors intend to use the same transport facilities, there’s a chance that Chesapeake’s NGL production could be significantly reduced due to third party capacity.

Shifting production towards liquids isn’t the worst idea Chesapeake has ever had, and they certainly have the assets and resources to become the number one NGL producer in the country. The big question now is: how long can demand and transport capacity for NGLs support increases in production from the likes of Chesapeake and its competitors? I wouldn’t recommend starting a long position in cash-strapped Chesapeake until we can be certain that production of NGLs won’t outpace demand and send prices crashing down like dry natural gas did last spring.

The article Chesapeake’s Production Mix Is Moving Towards Liquids originally appeared on Fool.com and is written by Cory Renauer.

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