Chesapeake Energy: Trap Or Treasure?

Chesapeake Energy (CHK) is one of the most controversial companies, and one of the most hated stocks in the market. It is largely misunderstood, and few recognize the extreme value that may be in the name, largely because of debt concerns. That said, the market has been pricing this stock, and that of peers Southwestern Energy (SWN) and Range Resources (RRC) as if they are approaching bankruptcy. That said, Chesapeake has just demonstrated the power of a short squeeze as shares are rallying today following incredibly strong results, and a positive outlook. In this column, we discuss the metrics that you need to be aware of.

Earnings

For the 2017 fourth quarter, Chesapeake reported net income of $334 million and net income available to common stockholders of $309 million, or $0.33 per diluted share.The company’s EBITDA for the 2017 fourth quarter was $764 million. A adjusted net income attributable to Chesapeake was $314 million, or $0.30 per diluted share, while the company’s adjusted EBITDA was $706 million. That is a pretty strong result and bodes very well for competitors in this sector. Let us discuss this in more detail

Expenses impress

Expenses were down which drove some of this positive benefit. Production expenses during the 2017 fourth quarter were $2.50 per boe, while general and administrative expenses (including stock-based compensation) during the 2017 fourth quarter were $1.34 per boe. Combined production and general and administrative expenses during the 2017 fourth quarter were $3.84 per boe, a decrease of 10 percent year over year and a decrease of 7 percent quarter over quarter. Gathering, processing, and transportation expenses during the 2017 fourth quarter were $7.15 per boe, a decrease of 10 percent year over year and a decrease of 3 percent quarter over quarter.

Production

In addition, production was up as was selling prices, driving a massive run up in earnings. Revenue in the fourth quarter increased 16 percent year over year due to a 3 percent increase in volumes and an increase in commodity prices. Average daily production for the 2017 fourth quarter of approximately 593,200 boe increased by 15 percent over 2016 fourth quarter levels and 10 percent sequentially, adjusted for asset sales, and consisted of approximately 99,900 bbls of oil, 2.603 bcf of natural gas and 59,500 bbls of NGL.