Chesapeake Energy shares slump Wednesday on weak earnings and poor prospects
The corporate body count is growing in the energy sector, as crude oil prices under $50 a barrel slash profits and forces O&G firms to cut capex. Chesapeake Energy shares were down more than 10% Wednesday after the firm reported below consensus earnings and noted it was planning to reduce its 2015 rig count and capital expenditures given much lower oil prices.
Oklahoma-based Chesapeake is the most recent energy firm whose financial results were buffeted by the more than 50% drop in crude oil prices over the last 9 months. Chesapeake Energy was getting hammered in trading on Wednesday morning, with shares off close to $2 at around $18.
More on Chesapeake Energy fourth quarter results
Chesapeake Energy reported fourth-quarter net income of $586 million, or 81 cents per diluted share. That was up sharply from $159 million, or 24 cents per share for the fourth quarter of 2013.
However, earnings per share were only 11 cents, less than half the 23 cents consensus EPS estimate of analysts surveyed by FactSet.
The market got spooked when Chesapeake also noted it would also only operate 35 to 45 drilling rigs in 2015, ther lowest number of active rigs since 2004 and a 38% decrease from an average of 64 rigs that the company operated in 2014.
Chesapeake also announced it is budgeting $4 billion to $4.5 billion in capital expenditures for 2015. That is a jaw-dropping 37% drop from $6.7 billion in total capital spending in 2013.
However, even with the cutbacks, the company guided for 2015 production of 235 million to 240 million barrels of oil in 2015, or an average daily production of 645,000 to 655,000 barrels of oil (or equivalent). Analysts note that is a 3% to 5% increase from production levels seen in 2014.
Statement from Chesapeake CEO Doug Lawler
In the 4Q earnings conference call on Wednesday, Chesapeake Chief Executive Doug Lawler announced that the company had sold Southern Marcellus Shale and Eastern Utica Shale assets for around $5 billion, “giving us tremendous financial flexibility.”
Of note, Chesapeake also finalized a $450 million acquisition that doubled the firm’s equity interest in the Powder River Basin and got a new $4 billion unsecured credit facility on investment grade-like terms, Lawler noted.
Lawler summed up Chesapeake’s current plans at the end of the conference call. “The current commodity price environment is difficult, but our focus on value and industry-leading performance is unchanged and we are managing our business and activity levels around current strip prices of approximately $55 per barrel for oil and $3 for natural gas.”