Chesapeake Energy, co-founded by flamboyant and freewheeling Aubrey McClendon, appears to be successfully restructuring in the wake of the former chairman and CEO’s departure. The company today announced positive Q3 earnings and analysts rewarded its upbeat outlook, but investors were less impressed, as share prices were down almost 7% by late afternoon.
Jack Nicklaus (far left) walks to the 8th green with pro-am playing partners (from left to right) Tom May, Robert Faitell, and Aubrey McClendon during the Morgan Stanley Pro-Am Invitational at The Memorial Tournament in Dublin, Ohio on Wednesday, May 30, 2007.
“We upgrade CHK shares to Neutral from Underperform and remove our $20 PT [Price Target] on the heels of strong operating results…While we continue to see some risks to 2014 growth, given the need for additional asset sales, new CEO Lawler is showing early success on capital efficiency initiatives, evidenced by strong earnings growth with lower capital intensity,” brokerage Sterne Agee said in a research note.
Stronger natural gas prices and increased liquids production from the corresponding period last year helped boost Chesapeake’s quarterly results. The company appears to have favorably hedged some of its 2014 production, according to the Sterne Agee analysts.
“Chesapeake announced it hedged 12% of 2014E natural gas production with swaps at $4.39/mcf. The company also layered on additional oil swaps and now has 52% of 2014E oil production hedged at $93.76/b.” – Sterne Agee
The company was saddled with an onerous debt load accrued during McClendon’s tenure and has been aggressively selling assets in an effort to deleverage. Chesapeake reported selling $3.6 billion worth of assets as of September 30th, and expects to shed an additional $600 million in assets by end 2013.
“I am particularly impressed by the strong performance of the company while we implemented significant transformational initiatives over the past few months. We look forward to achieving further efficiency gains and improvements in returns on capital in 2014,” Lawler said in a statement.
Despite the rosy 2014 outlook, the share price was down due to expectations that Q4 2013 oil production would be about 9,000 b/d lower than forecast because of weather disruptions and aforementioned asset sales.
