Chesapeake Energy Corporation (CHK) Q1 Earnings Preview

Chesapeake Energy Corporation (CHK) Q1 Earnings Preview

Chesapeake Energy Corporation (NYSE:CHK) will report its first quarter earnings on May 1, and according Trefis, an independent research firm, the company will  benefit from the increasing price of natural gas and a surge in the demand of oil and natural gas liquids production. In the last quarter, the company posted an increase in revenue by 30 percent year over year to $3.53 billion, but net income came in low at $300 million.

Chesapeake Energy Corporation (CHK) Q1 Earnings Preview

The energy company has been making efforts to increase its oil and liquid production, and is making good progress in liquid production.  In Q4 2012, liquid production per day came in at 147,500 barrels, an increase by 39 percent year over year, and production of oil increased by 69 percent.

Trefis in its report mentioned that production in the company is estimated to do well in the first quarter. Chesapeake Energy Corporation (NYSE:CHK) stated that liquid production surged to all time high of around 160,000 barrels per day in Q1. The company also seeks to put 86 percent of the drilling budget to liquids, an increase from 46 percent in 2011.

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Prices of natural gas have surged by over 20 percent in the last quarter and are at present $4 per million British Thermal Units (MBtu). The price shot up mainly due to strong demand fueled by an extended winter but this price could dip down in the summer. According to Trefis, the increase in price will have a positive effect on the Chesapeake when it posts its Q1 results. Gas production as per the estimation of the firm will decrease approximately by 7 percent, but some additional price based production in  Q1 will be helpful to take advantage from increasing gas prices.

Chesapeake sold assets last year in order to increase its cash position. The assets sold in 2012 totaled approximately $12 billion. Through the sales of assets, Chesapeake paid its long term debt and reduced it from $15.7 billion in Q3 2012 to around $12.1 billion in Q4. The company is seeking to divest $4 to $7 billion in non-core assets this year.

According to Trefis, Chesapeake Energy Corporation (NYSE:CHK) is making efforts to enhance its capital efficiency, primarily for the drilling program through which the company is looking forward to reduce the capital expenditures to around $6 billion for 2013, from around $8.8 billion last year.

The firm has been employing advance technologies in order to bring down the cost of drilling wells. For instance, it is using pad drilling, which increases the speed of the drilling process and improves economy of scale.

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