Chesapeake Earnings Outshine

Zacks

Natural gas provider Chesapeake Energy Corp. (CHK) reported adjusted first quarter 2013 earnings of 30 cents per share, up 67% year over year and ahead of the Zacks Consensus Estimate of 24 cents. The outperformance came on the back of improved oil production.

Total revenue improved 41.5% to $3,424.0 million from $2,419.0 million a year ago. The top line also got the better of the Zacks Consensus Estimate of $1,877.0 million.

Operational Performance

Chesapeake's average daily production in the quarter increased 7.5% year over year to 358 billion cubic feet of natural gas equivalent (Bcfe), of which natural gas accounted for 76%. The percentage of natural gas production to total volume decreased 5% points on an annualized basis. However, natural gas production grew 0.7% to 273 billion cubic feet (Bcf) from 271 Bcf, while oil production expanded 54.5% from the year-ago level.

Natural gas equivalent realized price in the reported quarter was $4.46 per thousand cubic feet equivalent (Mcfe), up 10.9% from $4.02 in the year-earlier quarter. Average realizations for natural gas were $2.13 per Mcf compared with $2.35 per Mcf in the year-earlier quarter. Liquids were sold at $94.85 per barrel, up 2.4% from the year-ago price of $92.63 per barrel.

On the cost front, production expenses decreased 18.1% from the year-earlier level to 86 cents per Mcfe.

Financials

At the end of the quarter, Chesapeake − the largest U.S. natural gas producer after ExxonMobil Corporation (XOM) − had a cash balance of $33 million. The debt balance stood at $13,449 million, representing a debt-to-capitalization ratio of 42.7%. Operating cash flow increased 237.2% year over year to $924.0 million.

Guidance

As the company shifts its focus to more liquid-rich plays, it expects natural gas production to fall approximately 7% in 2013, while liquids production is expected to increase approximately 27%.

Chesapeake expects 2013 total production in the band of 1,420–1,474 Bcfe. Natural gas is expected to contribute 1,060–1,090 Bcf to the total production. Oil production forecast is 37–39 million barrels/MMBbls and NGL will likely be in the 23–25 MMBbls range.

During 2013, Chesapeake aims to spend approximately 86% of its total drilling and completion capex in liquids-rich plays. The company also plans to invest heavily in the development of its holdings in the Eagle Ford Shale, Granite Wash and Mississippi Lime.

Zacks Rank

Chesapeake retains a Zacks Rank #3 (short-term Hold rating). However, there are other Zacks Ranked #1 (Strong Buy) stocks in the oil and gas industry like Harvest Natural Resources Inc. (HNR), and EPL Oil & Gas, Inc.  (EPL) that appear more attractive in the short term.
 

Read the Full Research Report on CHK

Read the Full Research Report on XOM

Read the Full Research Report on EPL

Read the Full Research Report on HNR

Zacks Investment Research



More From Zacks.com
View Comments