http://www.morningstar.com/earnings/41893269-chesapeake-energy-corp-chk-q2-2012.aspx

Chesapeake Energy Corp CHK
Q2 2012 Earnings Call Transcript

Transcript Call Date 08/07/2012

Operator: Good day and welcome everyone to the Chesapeake Energy 2012 Second Quarter Earnings Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Jeff Mobley. Please go ahead, sir.

Jeffrey L. Mobley - SVP, IR and Research: Good morning and thank you for joining our conference call today. I'd like introduce the members of the management team that are on the call this morning. We have Aubrey McClendon, our Chief Executive Officer; Nick Dell'Osso, our Chief Financial Officer; Steve Dixon, our Chief Operating Officer; John Kilgallon, and Gary Clark, from the Investor Relations team and this is Jeff Mobley speaking. Following the comments of the management team, we will take your questions this morning and as I am sure you can understand we are not going to be able to comment on matters that are subject to litigation or other inquiries.

As usual, our call will last one hour and now I'll turn the call over to Aubrey.

Aubrey K. McClendon - CEO: Good morning and thank you for joining us today. Despite experiencing the lowest natural gas prices in over 10 years during the 2012 second quarter, we are pleased with the Company's performance during this challenging time for our industry. For example, our production surged ahead by 25% year-over-year and 4% sequentially. However, had it not been for our 330 million per day gas curtailment during the quarter, Chesapeake's production would've actually been up a remarkable 36% year-over-year. These production increases are obviously impressive, but they are especially so for a company as large as ours.

Most importantly, our oil production growth has really taken off. Starting from a base of 26,700 barrels per day in January 2010, in the past 10 quarters, we've increased our oil production by 201% to 80,500 barrel per day.

Our natural gas liquids production growth has been very strong too, growing from 10,600 barrels per day in January 2010 to nearly 50,000 barrels per day in the second quarter, an increase of 370%. Taken together, Chesapeake's total liquids production of 130,200 barrel per day has now risen to 21% of our total production mix and we expect this percentage to continue trending upward to 35% of total production by 2015. In addition, our second quarter liquids production was up 65% year-over-year and 15% sequentially.

Looking across the industry, our year-over-year liquids production growth is the third best in the industry on an absolute basis and on a percentage basis, it is the second best. Chesapeake is now the 11th largest liquids producer in the U.S and we hope by 2015 to be knocking on the door of the top five liquids producers in the U.S.

You may recall that in 2010 when we had a very modest liquids production of about 30,000 barrel per day, we set a goal of reaching an exit rate of 250,000 barrel per day of liquids production in 2015. In 2011 we accelerated that goal to be in a average of 250,000 barrel per day during all of 2015, rather than just an exit rate.

Given that Chesapeake's production already exceeds 50% of our objective, it appears, our ambitious target can likely be exceeded if present trends continue.

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