Energy & Mining

Is Chesapeake Energy Corporation (NYSE:CHK) Going Anywhere?

Chesapeake Energy Corporation (NYSE:CHK)

Chesapeake Energy Corporation (NYSE:CHK) posted largely feeble financial results for Q4 2016, which it reported on February 23. Revenue of $2.02 billion fell 24% from a year earlier quarter and also came short of the average revenue estimate of analysts polled by Reuters. Analysts were expecting the company to generate revenue of $2.08 billion for the quarter. The adjusted EPS of $0.07 that Chesapeake posted in Q4 2016 was in line with expectations.

Chesapeake’s results in the latest quarter were hurt by weaker prices and lower volumes. Unprofitable hedging also caused an adverse impact on the company’s earnings. Oil companies struggled with falling prices of the commodity for nearly two years amid a global supply glut. However, a landmark deal by the OPEC last year brought hope of price recovery in the oil market as members of the cartel agreed to cap their output. However, price recovery has been slow.

The nearly two years of downbeat oil prices not only impacted earnings at Chesapeake, but also left the company deep in the red. The company exited Q4 2016 with net long-term debt of more than $9.9 billion, offset by cash balance of $882 million.

What happens next?

While Chesapeake Energy Corporation (NYSE:CHK) fell short of providing clear assurance that 2017 would be a great year, the management provided several hints that the company is steadily regaining its footing and the coming years should be better. Though investors should be aware that any unexpected developments in the oil market that cause further and prolonged price declines could send the management of Chesapeake back to the drawing board.

As much as Chesapeake struggled with lower volumes and weak prices, it still managed to cut its operating expenses for Q4 2016 by 58.4% from a year earlier to $2.3 billion. That helped the company to narrow its GAAP net loss to $741 million from $2.23 billion a year earlier.

The management also addressed the issue of declining volumes, saying that it will try to reverse the trend starting in the back half of the year.

Production target

Chesapeake Energy Corporation (NYSE:CHK) hopes to produce between 532,000 and 562,000 barrels of oil equivalent per day (boepd) in 2017 despite narrowing its capital budget for the year as part of cost controls.

The management expects to cut the company’s debt by $2 – $3 billion over the next few years. Asset sales are expected to contribute toward the cost reduction.

Stock movement

Chesapeake Energy Corporation (NYSE:CHK)’s feeble quarterly earnings combined with concerns over the company’s huge debt sent the shares down nearly 2.9% to $5.75 in the last session. The stock is down more than 18% so far in 2016, but has gained more than 180% over the last 12 months.

Ticker Symbol CHK
Last Price a/o, 4:02PM EST  $                       5.75
Average Volume (mlns) 44.58
Market Cap (blns)  $                  5.09
Sales (mlns) $9.93
Shares Outstanding (mlns) 884.48
Share Float (mlns) 878.95
Shortable Yes
Optionable Yes
Inside Ownership 1.00%
Short Float 12.67%
Short Interest Ratio 2.50
Quarterly Return -9.59%
YTD Return -18.09%
Year Return 113.75%

I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 96 hours. All information, or data, is provided with no guarantees of accuracy.

About the author: Monica Gray has an undergraduate degree in Accounting and an MBA – earned with Honors. She has six years of experience in the financial markets and has been a securities analyst for the past two years.

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Monica has an undergraduate degree in Accounting and an MBA she earned - with Honors. She has six years of experience in the financial markets and has been an analyst for the past two years.

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