Chesapeake Energy Corporation (CHK) reported third quarter results of 70 cents per share, compared to the Zacks Consensus Estimate of 66 cents and year-earlier quarter earnings of 87 cents. Before adjusting one-time items, earnings per share were 30 cents. Despite the increased production volumes and lower production expenses, earnings were down due primarily to weak natural gas prices. (See earnings call transcript.)

　　Chesapeake's average daily production for the quarter increased 7% year-over-year and 1% sequentially to 2.48 billion cubic feet equivalent (Bcfe), of which natural gas was 92%. Taking into account the company's production curtailments, Chesapeake's year-over-year and sequential production growth rates were 14% and 2%, respectively. The company is guiding towards full-year production growth of approximately 5-6% in 2009, 8-10% in 2010 and 12-14% in 2011.

　　Average realizations for the quarter were $6.04 per thousand cubic feet (Mcf) for natural gas, compared to $5.56 per Mcf in the previous quarter and $8.02 per Mcf in the year-earlier quarter. Realizations came to $66.42 per barrel of oil, compared to $56.72 per barrel in the previous quarter and $75.74 per barrel in the year-ago quarter.

　　At the end of the quarter, Chesapeake had proved reserves of approximately 12.0 trillion cubic feet equivalent (Tcfe), a decrease of 4.2% from the end of the previous quarter. Total drilling and net acquisition costs for the first three quarters were 78 cents per Mcfe. Year to date, the company has replaced 665 Bcfe of production with an estimated 608 Bcfe of new proved reserves for a reserve replacement rate of 91%.

　　At quarter end, Chesapeake had a cash balance of $520 million and a debt-to-capitalization ratio of 48.5%, compared to 53.1% as of June 30, 2009. We believe that the fall in debt-to-capitalization ratio is a result of the company's ongoing asset monetization initiatives.

　　While we believe that production growth will remain at or near the top of its large-cap peer group, particularly in the light of continued strong drilling results from its shale plays, Chesapeake's natural gas weighted reserves and production remain our concern.