Chesapeake Energy released its second quarter earnings report earlier this week, and like most companies in the Energy sector, the results were not great. The only good thing was that the bar was already set quite low. Analysts from one firm note that Chesapeake could burn through serious amounts of cash over the course of the next couple of years.
Despite this, shares of Chesapeake Energy rallied today, climbing as much as 9.04% to $8.92 per share in early trading.
Chesapeake posts losses
The energy giant swung to a loss of 11 cents per share or $126 million, which was what Wall Street expected. In last year’s second quarter, Chesapeake reported earnings of 36 cents per share. The big problem was the huge decline in realized prices, which more than offset the 1% and 2% increases in production and the 16% and 11% reductions in costs.
Pros And Cons Of Tail Risk Funds
Editor’s note: This article is part of a series ValueWalk is doing on tail risk hedge funds. The series is based on over a month of research and discussions with over a dozen experts in the field. All the content will be first available to our premium subscribers and some will be released at a Read More
Chesapeake’s average production was 702 millions of barrels of oil equivalent, including 119 million barrels of oil, 79 million barrels of natural gas liquids, and 3 cubic feet of gas per day. After adjusting for divestures, the company recorded a 13% increase in total production year over year.
Realized prices declined 40% from last year to $16.08 per barrel of oil equivalent. Chesapeake recorded hedging gains of $3.95 per barrel of oil. Management guided for 5% to 7% growth in oil production and reported a $20 per barrel hedging impact. They expect to spend between $3.5 billion and $3.9 billion on capital expenditures.
Chesapeake must sell billions’ worth of assets
As commodity prices remain low, Oppenheimer analysts Fadel Gheit and Luis Amadeo said in a report dated Aug. 6 that they expect Chesapeake to see $1.8 billion in cash flow deficits this year and a $2.7 billion deficit next year.
They note that the company will fund those deficits with the $2 billion in cash it has on its balance sheet and proceeds from future asset sales. In order to pay for capital expenditures, however, Chesapeake Energy is going to have to sell more than $3 billion worth of assets.
The company recorded $567 million in operating cash flow during the second quarter and $1 billion in cash to fund capital expenditures. It paid out $59 million in dividends and $71 million in preferred dividends and minority distributions during the second quarter.