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- 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 • Sat, Nov. 8
- 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.
- Chesapeake is one of the most affected companies due to the recent fall in commodity prices.
- The long-term demand outlook of the sector is favorable, which should result in a sustained recovery in the crude prices.
- The company has achieved a good business mix, which should result in better operational performance and a strong financial position.
- OPEC meeting at the end of the month is important, as the OPEC members will likely announce a decrease in crude supply.
Chesapeake Energy Q3 Earnings Preview: Debt And The Powder River Basin
- Chesapeake Energy has a chance to finally shed the burden of its past and achieve an investment-grade rating.
- The Powder River Basin offers Chesapeake a lot of liquids upside that is oriented towards crude and condensate.
- Management should update investors with the production results of at least two new wells targeting the Sussex interval, which could have big implications for the company.
Chesapeake Energy Sold $5.375B In Assets, Its Debt Should Be Investment Grade Soon, It's A Buy
- CHK sold 413,000 net acres of Marcellus and Utica acreage to Southwestern Energy Company for $5.375B.
- This should help it to appreciably reduce its approximately $12.2B in debt. If you subtract its $1.46B in cash, net debt was only about $10.7B before the deal.
- With the many reasons for US natural gas demand to go up in the next few years, #2 US natural gas producer CHK's stock should go up too.
- CHK is also well hedged, so the recent sell off mediated mostly by the oil price decline is overdone.
Chesapeake Energy: It Just Doesn't Pay To Follow Mr. Market
- Chesapeake Energy's share price has fallen off a cliff.
- Shares are down a massive 33% from their 52-week high.
- Despite Mr. Market's erratic behavior, I think this extreme and unwarranted pullback makes for an excellent purchase opportunity.
- Asset sales, investment spending control and deleveraging are strategic moves that have dramatically de-risked Chesapeake Energy.
- Chesapeake Energy reaffirmed its adjusted production guidance for 2015.
- I have recently added some additional shares in Chesapeake Energy. The company continues to reduce its debt load and transform into a more focused E&P play.
- This transformation was accelerated this week with a major asset divestiture. Insiders have also been big buyers of the stock in 2014.
- The shares looks undervalued both on a book and net asset value basis. The stock are also almost 50% below the median price target held by 24 analysts on it.
- Chesapeake Energy recently sold assets in West Virginia to Southwestern Energy for $5.4 billion.
- This sale will mostly reduce its natural gas operations.
- What are the benefits for the company from this sale?
Update: Chesapeake Sells Assets In The Southern Marcellus And Utica Shale
- The company announced the sale of assets in the southern Marcellus and Utica Shale.
- The sale is in line with Chesapeake's strategy of reducing natural gas production volumes.
- We maintain that the company is on track and it will continue to reshuffle its product mix.
Update: Chesapeake Energy Raises $5.375 Billion By Selling Part Of Its Marcellus And Utica Operations To Southwestern Energy
- Chesapeake Energy's stock shot up 17% on Thursday when it announced that it had sold $5.375 billion worth of assets to Southwestern Energy Company.
- Chesapeake is unloading 413,000 net acres in Northern West Virginia and Southern Pennsylvania, which is capable of targeting the Utica and Marcellus formations.
- While Chesapeake is missing out on the growth opportunities the acreage would offer, it's a necessary move to reduce its leverage and focus its cash on core areas.
Chesapeake Energy: Marcellus South Sale Highlights Sum-Of-The-Parts Value
- The $5.4 billion divestiture of the Marcellus South addresses leverage concerns and delivers an adequate value for a major asset in the portfolio.
- The transaction is logical in the context of Chesapeake’s asset-rich but capital-poor situation.
- The divestiture may not be the last strategic step that the company may decide to pursue.
- The recent large slide in Chesapeake Energy appears unwarranted with the company still focused on natural gas production.
- Natural gas inventories are filling the gap, but the numbers remain below the five-year average with the injection season coming to an end.
- The improving economics of the Haynesville Shale places Chesapeake Energy in a prime location to benefit from Gulf Coast natural gas demand.
Chesapeake Energy: Fundamental Strength And Improving Production Profile Make It A Smart Investment
- Chesapeake Energy missed earnings estimates the last time, but the company is undertaking efforts to cut costs.
- Chesapeake's fundamentals are strong, and is earnings are expected to grow at a good pace in the next two years.
- Chesapeake is expanding its production profile to tap the growing consumption of natural gas.
There Are A Lot Of Positives For Chesapeake Energy, Including A Major Technical Support
- Chesapeake Energy increased production in Q2 2014 by 13% year over year.
- However, it saw EBITDA and adjusted EBITDA fall significantly as prices of oil and natural gas fell.
- CHK has huge assets in some of the most prolific unconventional fields in the US (12+ million acres).
- CHK has reduced its net debt to approximately $10B, which has been a milestone for some time.
- Lower than normal natural gas stores and a likely El Nino winter may lead to higher natural gas prices this winter. The fundamentals should help CHK make a technical bounce.
Chesapeake Energy: Barron's Thinks Earnings Can Double Over Next Few Years
- I have been reading Barron's for thirty years and the magazine consistently provides a good flow of starting points for possible new investments.
- This week's magazine has a couple of positive paragraphs on the investment case for owning Chesapeake Energy. An opinion I share as I recently purchased the stock.
- This energy producer's stock is cheap compared with peers, the company is set to make dramatic operational improvements and earnings could more than double over the next four years.
Mon, Jun. 16, 4:28 PM| 5 Comments
Mon, Jun. 9, 12:58 PM
- Mac is back, as former Chesapeake Energy (CHK) CEO Aubrey McClendon's American Energy Partners announces $4.2B in acquisitions across shale formations in Texas, West Virginia and Ohio.
- The biggest deal is a ~$2.5B acquisition of ~63K net acres of oil and gas properties in Texas' southern Permian Basin from Enduring Resources.
- In two other acquisitions totaling $1.75B, he’s acquiring 27K net acres (with 40M cf/day of natural gas production) in the Utica shale region of Ohio, and he’s taking 48K acres (with 135M cf/day of nat gas production) in the Marcellus shale of West Virginia, both from Shell's (RDS.A, RDS.B) East Resources division and an unnamed private company.
- “He’s making bets on the same type of assets he did at Chesapeake," Oppenheimer's Fadel Gheit says. "The guy is consistent.”
Mon, Jun. 9, 11:49 AM
- EOG Resources' (EOG +1.1%) crude oil production surged 42% in Q1, and if business stays on course, as expected, the E&P company could enjoy a 32% jump in earnings this year, according to a weekend profile in Barron's.
- EOG's enterprise value is 6.9x this year's estimated EBITDA, roughly in line with the EV/EBITDA multiples accorded competitors Chesapeake Energy (CHK) and Devon Energy (DVN), but the story says it deserves a loftier multiple than the group, given its significant drilling inventory, superior production growth, lower debt ratio, and 15.6% return on equity vs. an average of 9.5% among peers.
- EOG raised its 2014 goal for growth in crude oil production to 29% from a prior 27%, and for total energy production to 12% from an earlier 11.5%, but its estimates often prove conservative, sparking expectations for more upward revisions as the year unfolds.
Mon, Jun. 9, 7:30 AM
- Chesapeake Energy's (CHK) board approves the spinoff of its oilfield services operations into a separate, publicly traded company called Seventy Seven Energy.
- The two companies will be separated through the distribution of SSE stock to CHK shareholders following the close of business June 30, as expected.
- CHK said in March it planned a spinoff of its oilfield services operations, which generated $2.2B in revenue last year.
Thu, Jun. 5, 12:57 PM
- Chesapeake Energy (CHK +1.8%) faces additional criminal charges from Michigan's AG for racketeering and fraud for "victimizing private land owners across northern Michigan."
- The complaint alleges that CHK tied up landowners in 2010 by telling them existing mortgages were no barrier to leasing their properties, then citing those same mortgages as justification for canceling almost all the leases after competition for them ceased.
- The allegations follow earlier accusations that CHK colluded with Encana (ECA +0.3%) to divide the Michigan counties in which they had bid for exploration rights in 2010, driving down prices.
Thu, Jun. 5, 11:59 AM
- Rose Rock Midstream (RRMS +0.2%) agrees to acquire crude oil trucking operations from Chesapeake Energy (CHK +1.1%) for an undisclosed sum, in a deal that will expand RRMS' reach into key oil producing shale basins.
- The deal includes 124 trucks, 122 trailers and other equipment in Texas, Oklahoma and Ohio; following the closing, RRMS will operate a fleet of more than 250 trucks with ~350 employees, servicing the Bakken, DJ/Niobrara, Eagle Ford, Granite Wash, Mississippi Lime, Permian, San Juan and Utica plays.
Mon, Jun. 2, 3:31 PM
- Walter Energy (WLT -6.3%) shares aren't helped by the coal producer's statement that new EPA proposals aimed at controlling carbon emissions from U.S. power plants should have no material impact on the company; in fact, WLT is down more than peers: CNX +1.1%, BTU +0.1%, CLD -0.3%, ACI -2.8%, ANR -4.6%.
- Long-term losers also will include electric companies that burn lots of coal - such as American Electric Power (AEP +0.1%), Duke Energy (DUK -0.3%), Southern Co. (SO -0.3%) and NRG Energy (NRG -0.1%) - but stiff regulations have been expected for some time.
- Likely winners include companies that pump natural gas and those that use it as their primary fuel, such as Calpine (CPN +0.3%), and companies that operate nuclear plants that generate little carbon but have been expensive to run, such as Exelon (EXC -1%), hope that their aging plants will become more competitive.
- A reduction in coal-fired capacity would increase utilities' demand for natural gas by 3B-10B cf/day from 22B cf/day now, potential benefiting major natural gas producers like Chesapeake Energy (CHK +2.1%), Cabot Oil & Gas (COG -0.8%) and Range Resources (RRC -0.6%).
- ETFs: XLE, XLU, TAN, ERX, KOL, IDU, VDE, OIH, ERY, FCG, VPU, DIG, GASL, DUG, IYE, GASX, PXJ, FENY, RYE, UPW, FUTY, RYU, FXN, FXU, DDG, SDP
Thu, May. 29, 8:42 AM
- Oklahoma Gov. Fallin signed legislation yesterday that will raise taxes on the state's oil and gas wells but was supported by the state's largest oil and gas producers, Devon Energy (DVN), Continental Resources (CLR) and Chesapeake Energy (CHK).
- The new law takes effect in 2015 and will tax energy companies at a 2% rate on a well's oil and gas output for the first three years of its life; after that, the tax rate rises to 7%.
- Critics say the higher rate still falls short of what's needed to help fund education and infrastructure improvements.
Tue, May. 27, 2:42 PM
- Chesapeake Energy (CHK +2.1%) is fighting back against collusion charges, accusing Michigan authorities of cherry picking internal documents to support their contention it colluded with Encana (ECA -0.9%) in dividing up oil and gas lease bids in the state.
- Michigan authorities have charged the companies with driving down the price of oil leases by conspiring over which counties each would seek resource exploration rights during a May 2010 auction.
- Among the evidence the state's lawyers say back up their accusations are CHK e-mails suggesting the firms "throw in 50/50" on the bids, but in new court filings, CHK cites other parts of the same e-mails to show former CEO Aubrey McClendon was open to competition.
Mon, May. 19, 7:17 PM
- Mexico, Iran and other countries that once played hardball with big oil companies are now rolling out the welcome mat, offering generous deals in the hope they will bring capital to stimulate output.
- But it isn't certain the big oil firms will want to return to all those countries, as the economics of the oil business may be changing to favor different kinds of exploration projects elsewhere in the world, WSJ reports.
- The biggest shake-up is coming in Mexico, where production has been falling steadily while rising electricity demand has forced dependency on imported natural gas and sent prices soaring; Total (TOT), Chesapeake (CHK) and Chevron (CVX) have expressed interest in entering the country.
- Iran is considering big changes to its current stringent oil terms, but some analysts say "it will be a slow process to get Western oil companies back to Iran... Iran's reservoirs are prolific, but they are also complex and in poor shape."
- Also, he Ukraine crisis has reinforced the trend in thinking about geopolitical risk as being a big factor.
- ETFs: XLE, ERX, VDE, OIH, ERY, FCG, XOP, DIG, GASL, DUG, XES, IYE, IEO, IXC, IEZ, GASX, PXE, IPW, PXJ, BARL, PXI, PSCE, FENY, RYE, FXN, GNAT, DDG, IOIL, FILL
Mon, May. 19, 2:59 PM
- Chesapeake Energy (CHK +1.1%) gets votes of confidence from at least three market analysts after last Friday's negative reaction to news of the details surrounding the planned spinoff of its oilfield services business.
- Analysts at Tudor Pickering upgrade CHK's rating to Hold from Trim, KLR Group raises its rating to Buy from Accumulate with a $37 price target (from $33), and Jefferies maintains its Buy rating while lifting its price target on the shares to $35 from $31.
- The firms cite improved capital productivity and say Friday's dropoff was an overreaction.
Fri, May. 16, 9:59 AM
- Chesapeake Granite Wash Trust (CHKR -7.3%) is under pressure after Chesapeake Energy (CHK -3.8%) revealed plans to proceed with a spinoff of its oilfield services operations by the end of next month as it also plans other asset sales.
- Shares are also going ex-dividend today.
- CHKR revenues and distributions depend on the timing of initial sales from CHK's development wells in which the trust receives an interest, as well as the sales volume and prices attributable to the Trust's royalty interests.
Fri, May. 16, 7:29 AM
- Ahead of its investor day, Chesapeake (CHK) says it plans to spin off its Oilfield Services Business to shareholders in a tax-free transaction that will remove $1.1B in debt from the parent company's balance sheet.
- The division will be renamed Seventy Seven Energy and will grant Chesapeake a dividend of $400M to repay inter-company debt.
- Chesapeake also intends to divest its ownership of CHK Cleveland Tonkawa, which will improve its balance sheet, mostly by eliminating $1B of equity attributable to third parties.
- In addition, Chesapeake has agreed to sell various non-core assets for $600M.
- The transactions will lead to a net leverage reduction to Chesapeake of nearly $3B but only lower its 2014 output by 2% and its operating cash flow by $250M. The deals will also cut Chesapeake's 2014 interest expense and dividend payments by $70M and eliminate $200M of projected capex.
- Following these deals, Chesapeake expects 2015 production to grow 7-10% and capex of $5.5-6B. The company is targeting five-year annual production growth of 7-9%.
- Shares are -3.8%. (PR)
Fri, May. 9, 11:58 AM
- Wall Street’s idea of investing in climate change means investors are piling into natural gas - the least polluting fossil fuel - as energy have accounted for nearly two-thirds of the $8B of inflows into sector-based ETFs this year.
- A White House advisory panel said this week that global warming already is blighting the U.S. with more intense coastal flooding, rainstorms and wildfires, but “weather extremes are good for the energy business," says money manager Skip Aylesworth.
- Climate change is proving to be a boon for energy investment; on the day the report was issued, the S&P Energy Index hit a record, and $322M flowed into ETFs that specialize in energy.
- "Natural gas is a potential bridge to new technologies that are green or clean,” says State Street's David Mazza, which he says has sparked investor interest in companies such as Nabors Industries (NBR), EOG Resources (EOG), Anadarko Petroleum (APC) and Chesapeake Energy (CHK).
- ETFs: XLE, ERX, VDE, OIH, ERY, FCG, DIG, DUG, GASL, IYE, GASX, PXJ, PXI, PSCE, FENY, RYE, FXN, DDG
Thu, May. 8, 8:15 AM
- The SEC has ended an investigation of Chesapeake Energy (CHK) and former CEO Aubrey McClendon and does not intend to recommend enforcement action, according to the company's latest 10-Q filing.
- The two-year probe concerned a perk that allowed McClendon to invest in oil and gas wells CHK drilled; McClendon pledged his stakes in the wells as collateral to borrow more than $1B, much of it from financial firms that also invested in CHK.
- McClendon is now running American Energy Partners, a new private company that has hired CHK to drill wells in Ohio.
Wed, May. 7, 8:23 AM
- Chesapeake Energy (CHK) +2.6% premarket and may be poised to begin trading at a 52-week high after Q1 earnings and revenues skyrocket Y/Y and easily beat Wall Street expectations.
- Q1 oil and gas production totaled 675.2K boe/day, up 11% Y/Y after adjusting for asset sales, consisting of 109.5K barrels of oil, 84.2K bbl of natural gas liquids and 2.9B cf of natural gas.
- Average price it received for its gas during Q1 was $3.27/M cf, up from $2.13/M cf a year ago.
- Raises 2014 total production growth outlook 9%-12%, up from an earlier forecast of 8%-10% growth, to reflect higher than expected natural gas liquids volumes; raises the midpoint of 2014 operating cash flow outlook by 13% to $5.8B-$6B from prior $5.1B-$5.3B due primarily to the increased production outlook.
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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