It has been about a month since the last earnings report for Chesapeake Energy (CHK). Shares have added about 116.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Chesapeake due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Chesapeake Q1 Earnings & Revenues Beat Estimates
Chesapeake Energy reported first-quarter 2020 earnings of $14.87 per share, against the Zacks Consensus Estimate of loss of $16.43. However, the bottom-line declined from a year-ago quarter profit of $28 per share, owing to low oil and gas prices.
Total revenues amounted to $1,801 million, up from $929 million in the year-ago quarter. The top line also beat the Zacks Consensus Estimate of $1,060 million.
The company is not being able to access financing. It is currently considering a bankruptcy court restructuring of its massive $9,163-million debt, if crude prices don’t improve significantly and stay in the bearish territory. Coronavirus-induced lockdowns that destroyed energy demand is responsible for the current crude pricing scenario. The stock declined 12.2% yesterday, following the news. Its balance sheet details are discussed below.
Operational Performance
Total Production Decreases
Chesapeake’s production in the reported quarter was approximately 479 thousand barrels of oil equivalent per day (MBoe/d), down from 484 MBoe/d a year ago, primarily due to lower production from Haynesville assets.
Total production comprised 126 thousand barrels of oil per day (Mbbls/d), up from the year-ago level of 109 Mbbls/d on the back of Brazos Valley output. Total natural gas production in the quarter was 1,898 million cubic feet per day (MMcf/d), lower than 2,023 MMcf/d in the year-ago period. Natural gas liquids (NGLs) production came in at 37 Mbbls/d in the first quarter, declining from 39 Mbbls/d in the year-ago period.
Price Realizations Plunge
Oil equivalent average sales price was $20.53 per barrel, down from $28.22 a year ago.
Oil price was $46.93 per barrel, down from $57.80 in the year-ago quarter. Moreover, natural gas prices declined to $1.86 per thousand cubic feet from the year-ago level of $3.27. Average sales price of NGLs was recorded at $10.71 per barrel in the quarter compared with $20.03 a year ago.
Marketing Operations
On the marketing front, the company recorded revenues of $724 million, lower than the year-ago figure of $1,233 million. Marketing expenses in the first quarter were $746 million, lower than the year-ago level of $1,230 million. The year-over-year decline stemmed from lower oil, natural gas and NGL prices from marketing operations.
Operating Expenses
Total operating costs in the first quarter surged to $10,768 million from $2,378 million in the prior-year period, primarily due to higher impairment charges. Rising exploration costs also resulted in higher expenses.
Cash Flow
Net cash provided by operating activities in the first quarter was recorded at $397 million, down from the year-ago level of $456 million.
Balance Sheet
At the end of the quarter under review, Chesapeake had a cash balance of $82 million. Net long-term debt was $9,163 million. Net current maturities of long-term debt were $420 million, much higher than its cash balance. Notably, $250 million of senior notes are due in 2020 and $294 million in 2021. Moreover, the company’s ability to clear debt is questionable since the upstream energy player’s times interest earned ratio of 0.02 is significantly lower than the industry’s 0.8.
Importantly, it had $1.9 billion outstanding borrowings under the $3-billion credit revolving facility at quarter-end.
Guidance
The company decreased 2020 capital expenditure expectation to the band of $1-$1.2 billion, which indicates a decrease from the 2019 level of $2.2 billion. For the remainder of the year, its capital expenditures will likely be in the range of $500-$700 million. This will be primarily focused on the company’s gas assets.
Due to current market uncertainty, it has withdrawn financial outlook, which was provided last February.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -9.43% due to these changes.
VGM Scores
At this time, Chesapeake has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Chesapeake has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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