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Oil & Gas Brief: A quick introduction to Chesapeake Energy

Publication Date: 17 Aug 2018 - By Kshitija Bhandaru By Kshitija Bhandaru
Actionable
Differentiated

Equity Fundamental Equity USA Energy

Chesapeake Energy (NYSE: CHK) is an independent exploration and production company headquartered in Oklahoma. It engages in exploitation and development as well as the acquisition of natural gas, natural gas liquids, and crude oil properties. The company primarily operates in the Appalachian basin (Marcellus and Utica shale plays), Eagle Ford shale play, Powder River basin, and the Haynesville shale play.

Chesapeake’s Q2 2018 revenue and earnings

Chesapeake Energy reported its second-quarter earnings on August 1. The company reported revenue of ~$2.25 billion—narrowly missing analysts’ estimates of $2.29 billion. In comparison, Chesapeake Energy’s revenue in the second quarter of 2017 was ~$2.28 billion. Revenues were lower due to lower oil, natural gas and NGL (natural gas liquids) sales which were $982 million in the second quarter versus ~$1.28 billion reported in the second quarter of 2017.

Chesapeake Energy’s adjusted EPS (earnings per share) in the second quarter was $0.15—in line with Wall Street analysts’ consensus EPS estimate. In contrast, Chesapeake Energy’s adjusted EPS in the second quarter of 2017 was $0.18. Apart from lower revenues in the second quarter, higher operating expenses in the second quarter also caused CHK’s earnings to decline. The company’s operating expenses in the second quarter was $2.22 billion versus $1.88 billion in the second quarter of 2017.

Brief background

Under the former CEO, Aubrey McClendon’s leadership, the company had been aggressively purchasing acreage positions, causing its debt load to increase. In the year 2016, Chesapeake Energy was riddled with bankruptcy fears, following speculations that the company was looking to restructure its ~$10 billion debt load. While the company denied those rumors, the stock took a hit, even as weak energy prices continued to weigh down on oil and gas stocks.

The key issues that have been challenging the company since the current CEO Doug Lawler took over the reins in 2013 included a significant amount of debt, challenging legacy gathering, processing, and transportation (GP&T) commitments, et cetera.

Over the five-year period from 2013 through 2017, the company has reduced 48% of its total leverage and financial complexity, per its annual shareholder report released in May 2018.

However, debt continues to be a significant part of CHK’s capital structure. At the end of the second quarter, Chesapeake Energy (CHK) had a principal debt balance of ~$9.71 billion. For context, CHK’s current market capitalisation is $3.95 billion.

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Kshitija Bhandaru

 

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