What To Expect From Chesapeake’s Q1 Results

Chesapeake Energy (NYSE: CHK), one of the largest natural gas producers in the U.S. is expected to release its first quarter 2018 results and conduct a conference call with analysts on May 2, 2018. Consensus market has a mean EPS (Non-GAAP) estimate of $0.27, 17% higher year-on-year (y-o-y). However, revenue is expected to decline by 9% y-o-y, as consensus revenue is estimated at $2.51 billion. Revenue is likely to decline as a result of lower production volume as a consequence of the company’s recent assets sales, further exacerbated by lower natural gas prices, with higher oil prices providing some relief.

Chesapeake entered into three separate sales agreements in 2017 in its Mid-Continent operating area for aggregate consideration of roughly $500 million which is expected to include the loss of 23,000 bpd (net) of production to the company. Additionally, production in the first quarter is expected to be sequentially lower, largely impacted by well production curtailments associated with recent extreme cold temperatures in several of the company’s producing regions leading to lower wells scheduled on production. Adjusted for asset sales, Chesapeake expects its total production to grow between 1% to 5% y-o-y in 2018.

The company’s top line is expected to be additionally hurt by a lower y-o-y natural gas price realization as its supply remains strong and demand remained weak despite longer winter months. However, higher crude oil prices are expected to relieve the company from declining natural gas prices. Crude oil spot price (average spot price of Brent, Dubai, and West Texas Intermediate, equally weighed) averaged $64.62 per barrel for the March ’18 quarter, in comparison to $58.68 per barrel in the previous quarter, depicting a 10% growth rate. Oil prices have displayed stellar performance in the first quarter of 2018 with the extension of the oil production cuts by the Organization of Petroleum Exporting Countries (OPEC) and Non-OPEC allies coupled with the recent geopolitical tension in the Middle East and a weaker dollar.

Chesapeake’s plans to retire nearly $2 billion -$3 billion of its debt in 2018 and additionally repurchase its higher coupon paying debt largely funded through its recent asset divestitures and the FTSI investment. The company expects the anticipated repurchase can reduce the company’s interest expense by $50 million annually and provide a significant boost to its bottom line. Our key expectations from the company’s 2018 results are highlighted in our interactive dashboard. You can make changes to our assumptions to arrive at your own fair price estimate for the company.

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