Chesapeake Q2 Earnings Preview: Commodity Price Strength and Operational Efficiency To Drive Growth

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Chesapeake Energy

Chesapeake Energy (NYSE: CHK) will release its second-quarter results on 1st August 2018 and conduct a conference call with analysts the same day. The company is expected have a moderate quarter with consensus market estimates expecting the company to post an EPS (Non-GAAP) of $0.15 vis-à-vis an EPS (Non-GAAP) of EPS of $0.18 reported a year ago. Revenue is also expected to remain flat at $2.29 billion. The company’s overall weak performance is expected to be led by a lower production level due to the company’s recent assets sales, while higher commodity prices and lower debt levels are expected to provide 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, the company has more recently announced the sale of its interests in the Utica Shale operating area which is expected to significantly reduce the company’s natural gas output by the end of the year. Lower volumes are thus expected to translate into weaker revenues for the company. However, the recent strength in commodity prices is expected to provide some relief to the company’s top line. WTI crude oil prices averaged at approximately $68.06 per barrel in Q2 ’18, in comparison to a price of $48.18 per barrel a year ago. Crude oil prices were helped by the sustained production cuts and the continued uncertainty with respect to Iran’s oil operations.

Nevertheless, the aforementioned asset sales have improved Chesapeake’s operational efficiency and have led to substantial margin improvement for the company. Chesapeake reported approximately a 10% improvement in its adjusted EBITDA margin in the first quarter, compared to the same period last year and we expect this trend to continue through the year. Additionally, the company’s bottom line is expected to benefit from lower interest expenses as the company has been systematically reducing its debt, funded broadly by its asset sales.

Our key expectations from the company’s 2018 results are highlighted in our interactive dashboard  Q2 ’18: What To Expect From Chesapeake In 2018?  You can make changes to our assumptions to arrive at your own fair price estimate for the company.

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