Higher Oil Output And Better Pricing To Drive Chesapeake’s Q3 Results

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Oct 30, 2018, 02:23pm
A monitor displays Chesapeake Energy Corp. signage on the floor of the New York Stock Exchange (NYSE) in New York, on Monday, Sept. 24, 2018. (Photographer: Michael Nagle/Bloomberg)
Chesapeake Energy, (NYSE:CHK), one of the largest natural gas producers in the US, is expected to release its September quarter results before the market opens on 31st October 2018. The recovery in commodity prices will result in higher price realization for the company, which is likely to drive the company’s performance for the quarter. Further, the shift towards an oil-based production mix and sustained production growth target will augment the top-line growth for the quarter. We will keenly watch out for any update on the company’s cash flow neutrality target and strategy going forward.
We have a price estimate of $4.50 per share for Chesapeake Energy, which is higher than its current market price. View our interactive dashboard – Chesapeake Energy’s Price Estimate – and modify the key drivers to visualize the impact on its valuation.
Key Trends To Watch For In 3Q’18 Results
The commodity prices have been on the rise since the beginning of the year, backed by the production cuts implemented by the Organization of Petroleum Exporting Countries and its allies. Brent crude oil price rose sharply in the third quarter and averaged at $75.07 per barrel, 44% higher compared to the same quarter of last year. Given the jump in commodity prices, we expect Chesapeake to witness higher price realization in the quarter, which will drive its top-line growth.
Chesapeake’s plan to increase the proportion of oil in its production mix is expected to further augment its revenue growth for the quarter.
With the use of optimized completions and customized facility design, the company has managed to increase its net oil production in the Powder River Basin by 90% year to date and anticipates further growth in the second half of the year. Further, Chesapeake’s low-cost, high-margin assets in South Texas have also demonstrated improved capital efficiency, and is expected to generate roughly $475 million in free cash flow this year.
Last quarter, the company had completed the sale of its assets in Utica for a sum of roughly $2 billion. This will bring down the company’s interest expense by up to $150 million annually, which is likely to boost its bottom-line.
This sale marks the end of Chesapeake’s aggressive divestment program to reduce its debt obligations, and puts the company on track to achieve its leverage target. Though the company will continue to look for opportunities to enhance its portfolio through divestiture or acquisition, this will no longer be the company’s primary financial strategy.
Now, the company will focus on organic production growth, exploration, strategic acquisitions, and portfolio management that will drive its value in the near future.
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