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- 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 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 • 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?
Wed, Feb. 26, 8:51 AM
- Encana (ECA) and Chesapeake Energy (CHK) reportedly are negotiating civil settlements with Michigan to try to end a criminal investigation into whether the companies colluded to keep oil and gas lease prices artificially low in the state.
- Encana hopes a settlement will be finalized within a few weeks, a lawyer representing ECA said in a recent court hearing, although potential terms of any settlements are unknown.
- Michigan's AG has an incentive to resolve the matter before a four-year criminal statute of limitations deadline expires later this year.
Wed, Feb. 26, 8:15 AM
- Chesapeake Energy (CHK) -3.1% premarket after swinging to an unadjusted Q4 loss, hurt by charges related to its efforts to reduce debt and simplify its balance sheet, and adjusted earnings and revenues fall short of expectations.
- Average daily oil production rose 15% Y/Y but fell 7% Q/Q, average daily natural gas liquids production gained 26% Y/Y and 9% Q/Q, and natural gas production slipped 3% Y/Y and 1% Q/Q; planned reductions were responsible for most of the decrease, but cold weather also had an impact.
- So far in 2014, CHK has received $209M net proceeds from asset sales and expects to receive $150M-plus related to asset sales in 2012-13; the anticipated sale of its oilfield services business is seen generating another $650M.
- Proved reserves were 2.7B boe at year-end 2013, a 2% increase from year-end 2012.
Wed, Feb. 26, 7:06 AM| 5 Comments
Wed, Feb. 26, 12:05 AM
Tue, Feb. 25, 5:30 PM
Tue, Feb. 25, 5:24 PM
- Chesapeake Energy's (CHK) oilfield services business could be worth $2.5B as the company seeks to either sell or spin off the business, according to a Jefferies analysis.
- CHK could use a sale of the business to fund most of the E&P's 2014 cash flow deficit, minimizing the need for additional asset sales, particularly among its portfolio of producing oil and natural gas fields, Jefferies says.
- The firm also forecasts CHK will outspend its cash flows by $800M-$1B in 2014, meaning that any asset monetization could plug a shortfall for the year.
Mon, Feb. 24, 2:20 AM
- Chesapeake Energy (CHK) is pursuing strategic alternatives for its oilfield services division, including selling the unit or spinning it off to the company's shareholders.
- Chesapeake Oilfield Services (COS) generated revenue of $2.2B in 2013; its service offerings include drilling, hydraulic fracturing, oilfield rentals, rig relocation, and fluid handling and disposal.
- The news follows speculation last week that 10%-owner Carl Icahn is seeking a cash bid of up to $40 a share for Chesapeake, whose shares closed at $26.57 on Friday to give it a market cap of $17.67B. (PR)
Fri, Feb. 21, 5:27 PM
- Rising natural gas prices could help Chesapeake Energy (CHK) profit off a plan to revive the maligned Haynesville shale play, where it gambled billions of dollars six years ago, and the 7-9 rigs CHK expects to deploy to the reservoir this year could boost daily rates for U.S. land drilling companies, analysts say.
- CHK's plan would increase the number of Haynesville rigs 25% to ~50 by the end of this year, according to an analysis by Raymond James - not like the old days, but renewed gas drilling could drive up margins for U.S. rig contractors by spreading out demand to other regions in the country.
Fri, Feb. 14, 5:36 PM
- The Pennsylvania governor says he is launching an investigation of Chesapeake Energy's (CHK) Marcellus shale royalty payment practices, adding to scrutiny of the company for allegedly defrauding landowners out of payments owed to them from gas production in the state.
- State law in Pennsylvania requires oil and gas producers to pay a minimum of 12.5% in royalties to owners of land where drilling takes place; companies are allowed to charge "post-production costs" for the transportation or processing of gas, but CHK invokes that right more than any other company, which Corbett says has led to the "erosion of trust and goodwill of the natural gas industry."
Tue, Feb. 11, 2:38 PM
- Carl Icahn owns a ~10% stake in Chesapeake Energy (CHK +0.2%) and is seeking a cash bid for the company, possibly as much as $40/share, according to oil and gas analysts at Benesch Friedlander Coplan & Arnoff.
- Possible buyers for the company include ExxonMobil (XOM), BP and Royal Dutch Shell (RDS.A, RDS.B), according to the report.
- CHK likely will shed more assets in 2014 after already selling millions in assets, the report adds.
Thu, Feb. 6, 6:52 PM
- Freezing weather across the U.S. this winter have pushed demand for natural gas to all-time highs, but at the same time a number of companies are saying the foul weather is hurting production.
- The latest is Chesapeake Energy (CHK), whose oil and gas output in December was well below its expectations due to "weather challenges" that continued into January and February, CEO Doug Lawler told analysts on today's earnings call.
- Anadarko (APC) said yesterday during its call that its operations in Colorado were finally returning to normal.
- Estimated U.S. natural gas output is running ~800M cf/day lower than the 30-day moving average and is off 1.5B cf/day from the start of this year when temperatures were more moderate.
Thu, Feb. 6, 11:17 AM
- Chesapeake Energy (CHK -5%) trades sharply lower following disappointing production guidance and plans to cut 2014 capex by 20%.
- In the conference call following the news, CHK said its average daily production during December was ~649K boe, well below its 2014 guidance range of 680K-695K; CHK expects Q4 2013 and Q1 2014 will mark its production low point and that it will see a significant Q/Q ramp-up beginning in Q2 (Briefing.com).
- Brean Capital says capital allocation remains the biggest question mark for CHK, and remains unconvinced CHK can truly compete for capital at a sub $5/Mcf gas price.
- CHK's 2014 outlook.
Thu, Feb. 6, 8:25 AM
- Chesapeake Energy (CHK) says it expects to spend ~20% less on capital improvements in 2014, projecting a capex budget of $5.2B-$5.6B.
- After adjusting for 2013 asset sales, CHK expects to generate 8%-10% production growth this year, consisting of 8%-12% oil production growth, 44%-49% natural gas liquids production growth and 4%-6% natural gas production growth.
- As a result of ongoing cost control initiatives, CHK sees lower per-unit production and G&A expenses; production expenses are expected at $4.25-$4.75/boe, down ~10% Y/Y.
- Shares -0.4% premarket.
Fri, Jan. 24, 2:45 PM
- As the U.S. freezes and stocks plunge, benchmark U.S. natural gas futures topped $5/mmBtu for the first time since Aug. 2010 on expectations that continued cold weather would keep demand high for the heating fuel.
- Natl gas has moved well into overbought territory during the last few days as consumers have pumped up their thermostats, and the spike may last a while longer given that the cold snap is set to continue all of next week.
- Despite the run-up in prices for Jan. and Feb., longer-dated prices for the spring and summer remain below $4.50/mmBtu, providing little incentive for the likes of Chesapeake (CHK -0.1%), Devon (DVN -0.8%) and EOG (EOG -2%) to switch from oil to gas drilling.
- The shift to backwardation is a big boost to United States Natural Gas Fund (UNG +8.2%) and even bigger to the leveraged VelocityShares 3X Long Natural Gas ETN (UGAZ +24.4%).
- Other ETFs: GAZ, BOIL, DGAZ, UNL, KOLD, NAGS, DCNG.
Wed, Jan. 15, 7:22 PM
- Exploration and production companies tend to track crude oil prices, J.P. Morgan's Joseph Allman says, so look no further than the current state of the oil futures market for a reason to be bearish on the sector.
- WTI oil futures, which decline every quarter in 2014 and beyond, suggest an off year for the E&P group, Allman writes, noting that the set-up could be similar to 2012, when WTI was down 7% for the year and the S&P was up 13%.
- That doesn’t mean that some oil stocks can’t outperform: Allman likes EOG Resources (EOG) and Noble Energy (NBL) among large caps for their “resource expansion and improved operations.”
- His least favorite stocks in the sector include Anadarko Petroleum (APC), Devon Energy (DVN) and Chesapeake (CHK).
Fri, Jan. 10, 12:24 PM
- Investors have been worried that Anadarko (APC +0.2%) might have more risks following the surprise ruling that it could be liable for as much as $14.2B related to its 2006 acquisition of Kerr-McGee, but Deutsche Bank says fears largely are unwarranted, with the worst case outcome now understood and risked by the market.
- The long-term is mostly positive, the firm writes, as APC "likely comes out of Tronox in a more aggressive monetization/value realization mode with the market focused on NAV upside and improving operating trends in 2014."
- APC trades at 5.4x 2014 EV/debt-adjusted cash flow vs. 6.4x for its average competitor; EOG Resources (EOG) trades at 7.1x, Noble Energy (NBL) at 8.7x times and Chesapeake Energy (CHK) at 7.3x.
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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