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at CNBC.com (Jan 13, 2015)
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at CNBC.com (Jan 12, 2015)
- Investors can uncover value in industries undergoing cyclical pressure.
- Chesapeake Energy has restructured its operations for the last few years, and has tremendous upside once commodity prices improve.
- At current prices, Chicago Bridge & Iron will reward patient owners.
Chesapeake Could See Additional Losses Due To Its Hedging Strategy
- Chesapeake Energy could present low realized oil and natural gas prices in the fourth quarter.
- The company's hedging plan could increase its losses from derivatives.
- Most of these losses are due to the three-way collar the company used for its 2015 output.
- Historical production trends suggest that Chesapeake will not slow down on its production. However, the composition of production might see alterations, with more oil output than gas.
- Capex reductions are in sight for the year as well. As efficient capex continues, and as production grows despite this cut, it indicates that the company remains highly efficient.
- The introduction of more credit will lead to higher interest expense and more cash outflow. The deleveraging initiative will see a pause in 2015.
- The share buyback scheme is consistent with the company’s initiative to enhance shareholder value. This, coupled with the new debt, will increase the D/E ratio of the firm.
- Given the potential that the company holds, a long position for the long term would be beneficial in this stock. Share prices may recover as commodity prices rebound.
- Chesapeake's production is expected to rise again in the fourth quarter.
- The company's realized oil and natural gas prices may be well below market prices.
- The drop in oil prices may lead the company to again reduce its capex for 2015.
Chesapeake Energy: Management Is The Key Ingredient
- Energy companies have been hurt from weakening oil and natural gas prices. Chesapeake Energy is no exception.
- Nobody is more bullish on the company than management itself.
- The recent stock buyback and insider buying bodes well for Chesapeake.
- CHK, in about three weeks when natural gas pricing bottoms, will be at generational buying levels.
- CHK has created a self-sustaining system of deleveraging, improving credit and debt ratings, and cheaper cost of capital - this is huge in a levered sector like E&P.
- A position in CHK common should be built over the next few weeks with additional trades being available in CHK debt and options for levered returns.
- The company plans to repurchase $1 billion worth of its own shares.
- Chesapeake Energy recently sold assets to Southwestern Energy for $4.975 billion.
- It continues to cut down its natural gas operations, which will increase its oil operations from the total production mix.
Update: Chesapeake Energy - Shareholders Just Got An Early Christmas Present
- Chesapeake Energy announced the closing of the sale of its Southern Marcellus and Utica shale assets to Southwestern.
- The announcement comes with news about the authorization of a new $1 billion share buyback initiative.
- Focus on share buyback highlights that management believes Chesapeake Energy is substantially undervalued, which reflects my opinion.
- I expect Chesapeake Energy's positive news flow to continue in 2015.
- Select asset sales, share buybacks, balance sheet and capex rationalization: Chesapeake is a strong buy.
Chesapeake Energy: Brilliant Stock Buyback, But Will It Help?
- Chesapeake Energy closes deal with Southwestern Energy to sell Southern Marcellus Shale assets providing a significant liquidity injection.
- Chesapeake surprises the market with the authorization of a large stock buyback.
- The brilliant moves to improve liquidity and reward shareholders can't overcome the weak commodity environment.
Update: Share Repurchase Plan Should Provide Some Support To Chesapeake
- The company announced the $1 billion worth of share repurchase plan along with the closing of asset sales in Marcellus and Utica shale.
- The asset sales are in line with my previous analysis.
- Share repurchase plan should offer some support to the share prices.
Chesapeake To Trend Higher On Asset Sale Completion
- Chesapeake Energy has boosted its cash position by $4.9 billion after completing the previously announced sale of Southern Marcellus Shale and Eastern Utica Shale asset.
- On December 16, 2014, Chesapeake Energy also announced a $4 billion credit facility, expanding the company's total liquidity to $9 billion.
- The $1 billion share repurchase program coupled with high financial flexibility is likely to take the stock higher from current levels.
- I expect Chesapeake Energy to go for oil based asset acquisition in the coming quarters as lower oil prices open up some attractive opportunities.
- Gradual exposure to the stock can be considered as energy price uncertainty still exists.
- Investors are ignoring the impact to natural gas on lower drilling for oil.
- Chesapeake Energy still obtains over 70% of production volumes from natural gas making it one of the biggest beneficiaries of higher natural gas prices.
- Natural gas inventories remain below 5-year averages.
How Much Have Low Oil Prices Hurt Chesapeake Energy? Is It A Buy Here?
- CHK could suffer unanticipated cuts in its revenues of roughly $1B in FY2015 due the oil price crash.
- NGLs prices usually roughly follow oil prices; and NGLs are hard to hedge.
- Natural Gas prices should remain firm or higher throughout the winter; and they may remain firm throughout FY2015.
- CHK's huge portfolio of great development properties make it a long term buy even in the face of possible short term losses (or small gains).
- Chesapeake continues to expand its NGL production.
- This shift has improved the company’s profitability.
- Lower realized prices are keeping the company from reaching even higher profit margins.
- The current expectations for lower demand for NGL this winter could reduce its profitability in the coming quarters.
Earnings Review: Powder River Basin A Big Part Of Chesapeake Energy's Liquids Upside
- Chesapeake Energy is going strong in the Powder River Basin, boosting its output sequentially by 16%.
- Going forward, Chesapeake plans to test out the stacked potential of the Niobrara formation in Wyoming.
- Formations formed during the Upper Cretaceous period, including the Sussex, Shannon, Teapot, and Parkman plays, are also being tested out this quarter.
- The Powder River Basin could end up yielding close to 2 billion BOE of oil weighted hydrocarbons for Chesapeake, making it a big part of its liquids push.
Chesapeake's $5.4 Billion Sale Likely To Improve Financial Outlook
- Chesapeake held nearly $11 billion in debt by the end of the second quarter. It had aims to reduce leverage by nearly 20% by the end of the year.
- It was able to strike a deal with its rival, Southwestern Energy Corp, for the sale of it Marcellus and Utica shale areas for nearly $5.38 billion.
- The gains from this deal could lead to lowering of debt levels, lower interest payments, more dividends, lower financial costs etc.
- Moody’s upgraded the rating for Chesapeake following the announcement of the deal, on the basis of improved financial outlook.
- Investment in shares still seems risky as there is more reason to believe that share price erosion is possible in the future.
Update: Operational Efficiency And Financial Control Are Key For Chesapeake's FutureIAEResearch • Nov. 8, 2014
- The company announced its third quarter earnings.
- The results are in line with our expectations as we have said in the past that increased efficiency and better operations will allow the company to grow.
- As the commodities markets make a recovery, we believe Chesapeake will benefit massively and it should prove to be a solid long-term investment.
- Chesapeake’s production reached its guidance for the third quarter.
- The company revised up its annual production.
- The company’s unrealized gains from its oil contracts drove its revenue higher.
Low Gas Prices Could Be Offset By Higher Volumes For Chesapeake
- For the 2nd quarter of 2014, Chesapeake Energy reported revenues of $5.15 billion, down almost 57% from $8.1 billion in the second quarter of the previous year.
- For the 3rd quarter of 2014, Chesapeake Energy’s revenues are forecasted at $4.84 billion, compared to $4.87 billion in the 3rd quarter of 2013.
- Besides the sales of assets, the company’s financial performance over the quarter will also be affected significantly by the falling natural gas prices.
- Despite facing an adverse market environment and falling prices for its core product base, Chesapeake Energy Corporation has improved its position from where it stood 3 years ago.
- The current downward trend in Chesapeake’s prices might actually represent an ideal entry point for investors with gas prices expected to increase accordingly with demand stabilization.
Chesapeake's Third Quarter Earnings To Be Announced - What Should Investors Expect?
- Revenues for the second quarter increased by 10% but did not translate into higher earnings as operating costs surged.
- Earnings for the quarter declined by nearly 66% relative to the second quarter’s earnings for the previous year.
- The second quarter witnessed a rise in production. This rise in production is likely to continue.
- Chesapeake is working on divesting from assets to improve its holding and debt structure, and also improve on its operations.
- Oil and gas price volatility could weigh down future top lines, despite increases in production.
Fri, Jan. 23, 3:44 PM
- Chesapeake Energy (CHK +0.3%) is upgraded to Outperform from Neutral with a $24 price target, up from $21, at Credit Suisse, which cites attractive relative valuation, a much improved balance sheet that has investment grade qualities, and the firm's expectation that CHK could utilize its newly found financial strength to make a counter-cyclical M&A transaction to upgrade its asset base.
- The firm says CHK's increase in its net asset value reflects the accretive nature of the recent Marcellus asset sale to Southwestern Energy, which was “the key transformative deal" for CHK and has the potential to “meaningfully enhance the company’s credit" and leaves CHK’s balance sheet as one of the strongest in the peer group.
- Credit Suisse's upgrade comes even as the firm downgrades several energy names, including Exxon and Chevron.
Tue, Jan. 20, 11:33 AM
- Chesapeake Energy (CHK +1.9%) moves higher as a report speculates that the company could be a potential acquisition target of India's ONGC.
- India's government has directed state-run ONGC to make some acquisitions to hedge themselves against higher energy prices in the future, and reportedly considers CHK a strong strategic target, given its recent sales, balance sheet and diversification through two commodities.
- The report says ONGC could already be in talks with a North American gas and oil company, with CHK believed to be the target.
Wed, Jan. 14, 3:49 PM
- "If you think the long-term price of oil is going to be $45 per barrel, there's basically nothing in this sector it makes any sense to own," Oakmark Funds' Bill Nygren tells CNBC, but he quickly adds he doesn't expect that. Checking futures out five years, the price is $70 per barrel, and a look at cost of production - near $70 - means production is going to be shutting down at current prices.
- One energy sector pick is Chesapeake Energy (CHK +5%). There's a stale perception of the stock, says Nygren, of a company designed to grow the top line as much as possible. But new management is laser-focused on maximizing rate of return, and their work at deleveraging the balance sheet is now allowing buybacks.
- Nygren's also liking General Electric (GE -0.4%), noting its underperformance - nearly 2000 basis points over the past year - and discounted valuation means the company only has to be average for the stock to go up. He also takes note of the new CFO as changing the focus to cash returns rather than reported earnings.
Wed, Jan. 14, 2:35 PM
- Barclays downgrades the large-cap E&P sector to Negative from Neutral and the small- and mid-cap E&P group to Negative from Positive, arguing that downside risk outweigh potential gains even if oil prices recover.
- Equity investors are pricing in WTI crude assumptions of close to $75/bbl in 2016 compared to current strip prices of ~$57, Barclays says, also noting that an abundance of relatively cheap oil supply from U.S. producers could further delay a price recovery.
- Among specific names, the firm downgrades CHK, SD, REN and HK to Underweight; DVN, CLR, KOS, MRO, RSPP and WLL are cut to equal weight.
- At the same time, Barclays picked a few favorites, upgrading Range Resources (NYSE:RRC) to Overweight from Equal Weight, and maintained Overweight ratings on large-cap E&P companies CNQ, EOG and NBL; among small- and mid-cap E&P names, the firm favors AR, CXO and XEC.
- ETFs: XOP, IEO, PXE
Tue, Jan. 13, 12:47 PM
- Traders smelling blood - or oil - in the water have piled into shorts against energy E&P companies, with short interest jumping a total of 12% for the final two weeks of 2014, according to Sterne Agee analysts using NYSE data.
- Oasis Petroleum (NYSE:OAS) led a 45.9% jump in short interest, followed by Pioneer Natural Resources (NYSE:PXD) with a 45.2% increase and Chesapeake Energy (NYSE:CHK) short growth of 31.9%.
- Sterne Agee energy analyst Tim Rezvan thinks the shorts are on the right side of the oil trade for the foreseeable future, believing a break below $40/bbl "wouldn't be a surprise in the short term."
- Short positions did not increase for all companies, as short growth fell for Viper Energy Partners (NASDAQ:VNOM), Callon Petroleum (NYSE:CPE), Energen (NYSE:EGN) and PetroQuest Energy (NYSE:PQ), among others.
Mon, Jan. 12, 3:17 PM
- Goldman Sachs upgrades a few energy stocks even as it cast a pall of gloom over most of the sector today (I, II, III), raising Chesapeake Energy (CHK -3.6%) to Buy from Neutral and Parsley Energy (PE -4.2%) to Neutral from Sell as potential "shale sale" winners.
- Despite PE's relative vulnerability to lower oil prices because of its weak balance sheet and negative projected free cash, Goldman has more confidence that its core Permian Basin position makes it an attractive M&A target.
- Among potential "shale scale" winners - companies that either can build positions in the core and reduce costs of capital - the firm's favorites remain EOG Resources (NYSE:EOG), Range Resources (NYSE:RRC), Pioneer Natural Resources (NYSE:PXD), Cabot Oil & Gas (NYSE:COG) and Concho Resources (NYSE:CXO).
- However, Goldman cuts Bill Barrett (BBG -8.3%) to Sell from Neutral, seeing greater downside risk to its production in a lower oil price environment, and lowers Eclipse Resources (ECR -1.5%) to Neutral from Buy due to a persistently wide funding gap through 2017 coupled with a weak balance sheet.
Wed, Jan. 7, 7:35 PM
- Energy bonds have become one of the riskiest sectors in the bond market, as the cost of buying five-year credit default swaps protecting $10M of bonds has jumped from $139K/year last June to $377K today for companies in the S&P/ISDA CDS U.S. Energy Select 10 Index.
- The index consists of 10 large major energy companies: APC, APA, CHK, COP, DVN, OTCQB:FSTO, HAL, BTU, VLO and WMB.
- Even though most of the companies boast investment-grade ratings, it now costs more to insure bonds in that index against default than it costs to insure bonds of an average junk-rated company, according to S&P.
Tue, Jan. 6, 10:59 AM
- A warm start to winter is disappointing investors who bet U.S. natural gas producers would offer a refuge from falling oil prices, as gas futures settled at a two-year low $2.882/MMBtu yesterday after dropping 32% in 2014.
- Among the 10 worst performers on the S&P’s Exploration & Production Index since June 20 - when oil was $107.26/bbl and gas was $4.53 - seven are companies that produce more than 50% gas; since June 20, Chesapeake Energy (CHK -1.3%) has declined 37%, Range Resources (RRC -0.7%) has dropped 41%, and Southwestern Energy (SWN -1.6%) has plunged 45%.
- The gas market “looks terrible” for 2015 and “has been structurally oversupplied for years," Raymond James analyst Marshall Adkins says as he cuts his forecast for average 2015 Henry Hub gas prices to $3/Mcf from $3.65, citing normal weather that will “unmask the bearish underpinning of the U.S. gas market."
- ETFs: UNG, DGAZ, UGAZ, BOIL, GAZ, FCG, GASL, KOLD, UNL, DCNG
Mon, Jan. 5, 12:18 PM
- Energy stocks severely underperform the broader market, with the sector -4.2% vs. the S&P 500's -1.4%, as U.S. oil prices briefly slip below $50/bbl for the first time since April 2009; Nymex crude recently was -4.4% at $50.37, while Brent crude -5.9% at $53.08.
- Among the day's biggest losers: DNR -9%, RIG -7.6%, NBR -4.8%, CHK -5.9%, SDRL -9.1%, SD -12.3%, NOV -5.9%, PSX -6.2%, APA -5.9%, DVN -4.4%, EOG -6%, SU -5.2%, OXY -4.2%, APC -8.7%, PWE -9%, ECA -5.5%, MRO -5.3%.
- Global oil majors, which have been seen as less vulnerable to falling oil prices, are posting big losses: XOM -2.7%, COP -4.5%, CVX -3.8%, BP -5.8%, RDS.A -4.6%, TOT -6.5%.
- ETFs: USO, XLE, OIL, UCO, ERX, VDE, OIH, SCO, XOP, ERY, FCG, DIG, PBW, BNO, GASL, DTO, DBO, DUG, IYE, XES, IEO, QCLN, IEZ, UWTI, PXE, USL, PXI, FENY, DWTI, PXJ, DNO, PSCE, RYE, SZO, PUW, FXN, OLO, DDG, HECO, TWTI, OLEM
Dec. 23, 2014, 12:33 PM
- Chesapeake Energy (CHK +7.9%) and Southwestern Energy (SWN -2.2%) are headed in opposite directions today after SWN's $5.4B price tag on its purchase of Marcellus Shale assets from CHK is the most the company has ever paid in an acquisition.
- At ~$13K/acre, CHK's 413K net acres, wells and equipment fetched a price that energy producers typically have been paying for land soaked in oil, not gas, analysts say; SWN "paid literally 2x or 3x times more than any gas deal we’ve seen in the last few years... 20% higher than anyone would have thought,” according to Wunderlich's Jason Wangler.
- In a conference call today, SWN CEO Steve Mueller said the company believes the acreage has more than enough potential to grow to a size that would justify the high price, and investors will see “significant cash flow in just a few years.”
- Sterne Agee's Tim Rezvan says the deal proved recent speculation on CHK's ability to close its previously announced sale to SWN unfounded and opens up CHK's road to investment grade credit.
Dec. 23, 2014, 9:18 AM
Dec. 22, 2014, 4:37 PM
- Chesapeake Energy (NYSE:CHK) +3.2% AH after closing its asset sale to Southwestern Energy (NYSE:SWN) for net proceeds of $4.975B, $400M less than expected due to a settlement for various items, including SWN's waiver of any future claims related to title defects and environmental liabilities.
- The properties sold to SWN consist of ~413K net acres and 1,500 wells located in West Virginia and Pennsylvania with 57K boe/day in net production, along with related property, plant and equipment.
- Also, CHK's board authorizes a $1B stock buyback program.
Dec. 22, 2014, 10:45 AM
- Natural gas prices fall 9.5% to near two-year lows at $3.133/mmBtu, in the biggest one-day percentage loss since February and the lowest intraday price since January 2013, on mild weather forecasts and inventory that is above year-ago levels.
- Prices are now down more than 15% in three straight losing sessions and are 30% lower than the six-month high closing price of $4.489/mmBtu it hit just a month ago.
- Weather has been unseasonably warm for December, limiting demand for home heating and allowing relatively low stockpiles to catch up to where they were a year ago and encouraging traders to sell based on the belief that supply is relatively healthy.
- Gas producers are among the biggest early decliners: XOM -1.1%, CHK -7.3%, APC -2.6%, SWN -6%, DVN -2.2%, COP -2.3%, BP -1.5%, COG -4%, BHP -1.9%, CVX -1.3%, ECA -5.1%, EQT -4.3%, RDS.A -1.7%, UPL -12%, WPX -6.9%, EOG -1%, OXY -1.1%, RRC -6.1%, APA -2.3%, AR -3.2%, CNX -3%, QEP -4.8%, LINE -4.9%, NBL -1.6%, SM -2.6%, XEC -4.2%, PXD -2.9%, NFX -5.1%.
- ETFs: UNG, DGAZ, UGAZ, BOIL, GAZ, FCG, GASL, KOLD, UNL, NAGS, DCNG
Dec. 19, 2014, 10:37 AM
- Even some of Wall Street's big boys are taking a beating in the oil sector: Carl Icahn’s holdings of Talisman Energy (NYSE:TLM) have tumbled $230M since late August, and John Paulson’s firm had one of its largest losses of the year on a bet that big oil companies would buy smaller ones.
- Before TLM agreed to be bought by Repsol, which boosted TLM shares, Icahn's losses stood at more than $540M as recently as Dec. 11, and he still will have lost ~$290M at the deal price; Icahn also holds stakes in hard-hit Chesapeake Energy (NYSE:CHK) and Transocean (NYSE:RIG).
- Paulson was the biggest shareholder in Whiting Petroleum (NYSE:WLL) and Oasis Petroleum (NYSE:OAS) at the end of Q3, but his strategy could yet pay off, as many analysts expect consolidation in the energy sector as lower oil prices pressure smaller firms.
- Also caught flat-footed by the oil price pullback was Prosperity Capital’s Mattias Westman, a longtime investor in Russia whose firm has lost more than $1B this year, in part on stakes in Russian energy companies Gazprom (OTCPK:OGZPY) and Lukoil (OTCPK:LUKOY, OTC:LUKOF).
Dec. 17, 2014, 2:20 PM
- New York Gov. Cuomo's administration says it will ban fracking statewide, citing health concerns and what it considers as limited economic benefits to drilling.
- NY's acting health commissioner said at a cabinet meeting in Albany today that studies on fracking’s effects on water, air and soil are inconsistent, incomplete and raise too many “red flags” for the state to allow it; the state Department of Environmental Conservation will now issue a legally-binding recommendation prohibiting fracking.
- The state has had a de facto moratorium on fracking for more than six years, so nothing really changes with today's decision.
- Parts of New York sit atop the gas-rich Marcellus shale formation, whose top producers include CHK, RRC, RDS.A, RDS.B, TLM, APC, ATLS, COG, CVX, CNX, EQT, EOG, XOM, WPX, XCO, CRZO, SWN, AR.
Dec. 15, 2014, 7:15 AM
CHK vs. ETF Alternatives
Chesapeake Energy Corp is a natural gas and oil exploration and production company. It explores, develops and acquires properties for the production of natural gas and crude oil from underground reservoirs and also provides marketing & midstream services.
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