- 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.
Sep. 22, 2014, 7:05 AM
Sep. 12, 2014, 11:14 AM
- Chesapeake Energy's (CHK -1.3%) stock price target is cut to $30 from $35 at Oppenheimer to reflect a weaker natural gas price outlook.
- The firm expects CHK's stock performance to reflect management's ability to deliver on its strategic objectives of creating value through capital efficiency and superior operating performance, while strengthening and simplifying the balance sheet and growing production and cash flow.
Sep. 9, 2014, 2:18 PM
- Chesapeake Energy (CHK +0.5%) must face trial on charges of felony racketeering and using false pretenses related to its land-leasing practices, a Michigan state judge rules.
- The Michigan AG brought the charges against CHK in June, alleging the company directed its agents to lock up land positions in the state during the state's 2010 oil and gas leasing boom by offering signing bonuses to private landowners.
- CHK says it believes the charges are without merit and expects to prevail at trial.
Aug. 28, 2014, 10:58 AM
- The Marcellus region is now the world's biggest natural gas shale play, and there’s still $90B to be made by tapping the area’s reserves, according to a study by Wood Mackenzie.
- The energy consultant predicts that the top 20 operators in the Marcellus will earn nearly $86B over the life of the play after the costs of reaching the reserves; for comparison, it estimates ~$118B to be made by extracting the resources in North Dakota’s Bakken region, but most production there is higher-priced oil.
- Major Marcellus shale producers include CHK, RRC, RDS.A, RDS.B, TLM, APC, ATLS, COG, CVX, CNX, EQT, EOG, XOM, WPX, XCO, CRZO, SWN, AR.
Aug. 26, 2014, 3:49 PM
- Cash earned from operations by 25 leading North American E&P companies is expected in aggregate to exceed their capital spending next year for the first time since 2008, according to a Financial Times analysis.
- Shale companies' finances have improved rapidly as a result of a shift by many away from natural gas towards more lucrative oil production and a pick-up in natural gas prices after they fell to 10-year lows in 2012.
- Analysts’ consensus forecasts now indicate that the leading shale companies’ operating cash flows in 2015 will show an excess of ~$2.4B over their capital spending vs. a shortfall of $32.2B in 2012 and $8.8B last year.
- Case in point: Chesapeake Energy (NYSE:CHK) in 2012 had capital spending almost $12B ahead of its cash flow from operations, but this year and next it is expected to be able to cover its spending almost entirely from its income.
- ETFs: XLE, ERX, VDE, OIH, ERY, FCG, XOP, DIG, GASL, DUG, IYE, IEO, GASX, PXE, PXI, PXJ, FENY, RYE, FXN, DDG
Aug. 7, 2014, 12:48 PM
- Chesapeake Energy (CHK -1.1%) is upgraded to Buy from Hold with a $34 price target at Stifel, which says Q2 earnings confirm its view that CHK is becoming well positioned from a capex efficiency perspective heading into 2015.
- The firm thinks the stock's current attractive valuation, combined with CHK's increasingly cleaned-up and simplified balance sheet and the recent correction in gas prices and equities, provide a fine entry point heading into what it sees as a positive production growth and capex efficiency trajectory in H2 and above consensus expectations for 2015 production growth.
Aug. 6, 2014, 8:26 AM
- Chesapeake Energy (NYSE:CHK) -3.3% premarket after missing Q2 earnings estimates, hurt by a loss on the repurchase of debt securities related to a refinancing and lower prices for natural gas liquids.
- However, CHK raises its midpoint of 2014 production outlook by 10K boe, or 1.5%, to 685K-705K boe/day, attributable to better production trends in H1 and an expected increase in well connections during H2.
- Q2 oil and natural gas production, adjusted for asset sales, totaled 694,650 boe/day, up 13% Y/Y, consisting of ~113K bbl/day of oil, 84.3K bbl/day of NGL and 3B cf/day of natural gas.
- Q2 production of natural gas liquids rose 72% but the average price CHK received in the quarter fell 13% to $21.03/bbl.
Aug. 6, 2014, 7:04 AM| Comment!
Aug. 5, 2014, 7:17 PM
- Natural gas production in the Marcellus region exceeded 15B cf/day in July, the most productive period ever recorded there, according to a new report from the U.S. Energy Information Administration.
- Marcellus, located mostly in West Virginia and Pennsylvania, now accounts for nearly 40% of total U.S. shale gas production, and its rapid growth isn’t expected to ebb soon, the report says.
- New wells in the region are expected to deliver another 600M cf/day, more than offsetting decline rates, for a net production increase of 247M cf/day.
- Major Marcellus shale producers include CHK, RRC, RDS.A, RDS.B, TLM, APC, ATLS, COG, CVX, CNX, EQT, EOG, XOM, WPX, XCO, CRZO, SWN.
Aug. 5, 2014, 5:30 PM
- ANR, AOL, APO, ARIA, AVA, AVT, BRKR, CEQP, CHK, CLH, CMLS, CNP, CONE, CSTE, CTSH, DBD, DISH, DNR, DVN, DWSN, EE, ELOS, GEO, GOV, GWPH, HFC, HNT, INXN, IPXL, ITC, KELYA, LINC, LIOX, MDLZ, MEMP, MVIS, NAVB, NUS, PERI, PH, PKD, POWR, RDC, RL, ROC, SBGI, SE, SEP, SF, SJI, SKYW, STWD, TAP, THI, TRGT, TWX, VC, VIAB, VITC, VOYA, WD, WIX, WPX, ZINC
Jul. 29, 2014, 9:11 AM
- Chesapeake Energy (NYSE:CHK) says it plans to spend $1.26B to buy back all outstanding preferred shares issued by its CHK Utica unit to simplify its balance sheet and eliminate ~$75M in annual dividend payments.
- CHK also says it will pay $450M as part of an agreement to exchange some acreage in Wyoming's Powder River Basin with private oil and gas producer RKI Exploration to consolidate its holdings in the southern portion of the basin.
- CHK -0.7% premarket.
Jul. 14, 2014, 8:10 AM
- Exterran Partners (NASDAQ:EXLP) agrees to acquire natural gas compression assets from Chesapeake Energy (NYSE:CHK) subsidiary MidCon Compression for ~$135M.
- The assets include 162 compression units, most of which are being used to provide compression services to BHP Billiton in Arkansas' Fayetteville Shale; as part of the deal, the contract operations services agreement with BHP will be assigned to EXLP.
- EXLP says the deal will add immediately to distributable cash flow per unit.
Jul. 10, 2014, 3:21 PM
- A judge in Michigan has ruled that Chesapeake Energy (CHK -1%) must face a criminal trial on a charge of bid-rigging with Encana at a 2010 state land lease auction, citing evidence of a conspiracy between the companies that drove state lease prices down sharply.
- The court cited evidence including an email sent by a top ECA exec to a land man bidding on ECA’s behalf on the morning of a 2010 auction which refers to a lease area on offer, stating that “this is a Chesapeake area and we will not be bidding.”
- The ruling said evidence did not support a trial on two other charges involving private landowners, since although the companies discussed a deal to avoid competing for private land leases, they did not consummate one.
Jul. 7, 2014, 3:59 PM
- Chesapeake Energy (CHK -4.7%) suffers sharp losses as natural gas prices tumble to their lowest in nearly six months after weather forecasts over the weekend showed lower than expected temperatures ahead.
- Cooling patterns expected to hit the U.S. midwest and northeast over the next 6-10 days have investors betting utilities won't need to burn as much natural gas in the weeks ahead, as summer demand for electricity to run air conditioners eases.
- The absence of extreme heat has helped chip away at a record natural gas shortage following last year's unusually severe winter; last week, the EIA reported an eighth consecutive week of producers adding more than 100B cu. ft. of natural gas to storage.
- ETFs: UNG, DGAZ, UGAZ, BOIL, GAZ, FCG, GASL, KOLD, UNL, GASX, NAGS, DCNG
Jul. 7, 2014, 8:14 AM
- Rice Energy (RICE) agrees to acquire ~22K net acres and 12 developed Marcellus wells in Pennsylvania from Chesapeake Energy (CHK) for ~$336M.
- RICE says the acquisition represents a 24% increase in its net acreage position and a 47% increase to its Marcellus inventory of 325 net risked locations as of March 31; current net production total ~20M cf/day from seven wells plus five wells in various stages of development.
Jul. 3, 2014, 3:20 PM
- A recent surge of low-magnitude earthquakes in Oklahoma probably is the result of the underground disposal of vast quantities of wastewater generated by oil and gas extraction, according to a new study published today in the journal Science.
- The researchers also calculated that four of the highest-volume wells in Oklahoma are capable of triggering ~20% of recent central U.S. quakes, and found that such induced quakes could potentially occur more than 30 km from the well.
- The Cornell geophysics professor who led the study says the results suggest regulators and oil companies should avoid disposing of wastewater near major faults and do a better job monitoring the activity.
- Among energy firms with a significant Oklahoma presence: CHK, CLR, APA, DVN, SD, EOG, MRO, OKE, OKS, GPOR, WPX, WMB, WPZ, LPI, CWEI, NFX, NGL, COG, WLL, NBL, MPO, PQ, XEC.
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.
Other News & PR