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Chesapeake Energy: Mr. Market Does Not Care About Cash Flow


  • Finally some cash flow. But not near enough to service the debt.
  • Long-term debt is still approximately $10 billion.
  • Great well results have not filtered into comfortably increasing production.
  • Those forecasted asset sales have not materialized on the scale and price needed to be helpful.
  • Gathering, processing and transportation expenses are still way out of line. Interest expense is burdensome.

Finally, Chesapeake Energy (NASDAQ:CHK) manages to actually produce some cash flow from operations and the stock drops. Lately, it seems like all the stock does is drop. To convince Mr. Market otherwise, the company needs to follow this quarter with ever increasing cash flows or a lot of very convincing asset sales. That may be a tall order, but it is at least speculatively possible if management is willing to think outside the box and get creative along the lines of Rick George when they were bailing out Obsidian (OBE).

Source: Chesapeake Energy Third-Quarter 2017 Earnings Press Release

The market concerns are neatly summarized by the two slides above. The third quarter this year is the first time since the third quarter last year that operations generated a significant amount of cash flow. The problem is that the third quarter last year was the only quarter to generate cash flow. So the market may be afraid of a repeat performance. Cash flow has not been adequate for some time. Management has yet to definitively guide to adequate cash flow. Up until now, decent cash flow has been in the indefinite future.

The result is that long-term debt has not changed all that much since the beginning of the year when the bank line balance is included. Mr. Market is getting frustrated by the lack of progress.

This company has about $10 billion in debt. Despite all the ballyhooed progress, there has been no tangible progress on the debt removal for too long. The latest press release shows record production results of individual wells and all sorts of partial debt progress. But the overall picture remains the same and it's depressing.

Source: Chesapeake Energy Third-Quarter 2017 Earnings Press Release

Most companies in the situation of Chesapeake Energy try to either grow

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I am a high school teacher for a decade. I am now retired.  Before that I was an analyst (operations and financial) and for a short time a Controller I have a B.S. with an emphasis in Accounting and an MBA (for which I studied Finance, Economics, and Management) I passed the CPA exam on the first try and am a retired CPA in the state of Maryland. I have a high school teaching credential and an MA in Math Education

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