Chesapeake Earnings Preview: What We’re Watching Thursday
Chesapeake (NYSE:CHK) will soon release its third quarter earnings Thursday afternoon. We see a modest growth in the revenues over the second quarter and a slight decline in the profits with the correction in the oil prices during the period. The broad outlook for the company looks positive as it plans to invest $1 billion over the next 10 years in technologies that drive the demand for natural gas. Chesapeake, the second largest U.S. natural gas producer, primarily competes with Exxon Mobil (NYSE:XOM), ConocoPhillips (NYSE:COP), Anadarko (NYSE:APC), BP (NYSE:BP) and Chevron (NYSE:CVX).
Our $35.60 price estimate for Chesapeake Energy’s stock is roughly at a 15% premium over the market price.
See our complete analysis of Chesapeake
- Will Chesapeake See Improved Results In 2019?
- Higher Oil Output And Better Pricing To Drive Chesapeake’s 3Q’18 Results
- Factors That Will Drive Chesapeake Energy’s Value In The Next Two Years
- Chesapeake Q2 Earnings Preview: Commodity Price Strength and Operational Efficiency To Drive Growth
- What Factor Is Driving Chesapeake’s Stock Rally?
- Key Takeaways From Chesapeake’s Q1
Riding High on Natural Gas Demand
The overall natural gas shipments by Cheasapeake are expected to touch an all time high as the industrial usage of gas continues to rise. With the emission rules becoming stricter, traditional industrial consumers of coal are switching to natural gas as an alternative fuel because the fuel is cleaner to burn and it is easier to modify the existing units for natural gas. Moreover, natural gas costs almost the same as coal when compared on the terms of energy produced and the money spent on it. Large scale transport fleet operators are also switching to natural gas in as it is significantly cheaper to run vehicles on natural gas when compared to diesel or gasoline.
The availability of natural gas fueling stations has been an hindrance for people to switch to the cheaper and cleaner fuel. The company has already started investing on the development of facilities that boost the demand for natural gas. See our detailed coverage on the natural gas infrastructure development here.
Fuel Price Correction Can Offset Profits
With the global economic instability, the crude oil and natural gas price is down from its 2011 peak price. The average realized selling price for the company may not be able to touch the Q2 number, hence we can see a slight decline in the profits for the company. The increase in the natural gas and oil production from the ‘Shale’ deposits will add to the company’s revenues, but also lead to a slight decline in the margins. Shale deposits are rich in terms of the quantity of the fuel contained in the region, but are more expensive to mine than the traditional oil wells. Its only with the recent technological advancements and high prices of fuel the shale mining has become profitable. Companies and countries are pushing hard to develop shale mining regions to suffice their future energy needs.
The company is expected to post a good jump in the profits and the revenues in the third quarter on a y-o-y basis and is well positioned for the growth going forward.
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