How Can Chesapeake Miss Estimates and Still See a Share Price Bump?

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Chesapeake Energy Corp. (NYSE: CHK) reported second-quarter 2019 results before markets opened Tuesday. The oil and gas exploration and production company posted an adjusted net loss per share of $0.10 on revenues of $2.39 billion. In the same period a year ago, the company reported adjusted earnings per share (EPS) of $0.13 on revenues of $2.29 billion. Second-quarter results also compare to consensus estimates for a net loss of $0.06 and $2.39 billion in revenues.

The company posted its best-ever quarterly oil production, pumping an average of 122,000 barrels a day. Chesapeake raised its oil production guidance for the 2019 fiscal year to a range of 43.0 million to 44.5 million barrels and total production, including natural gas and natural gas liquids, to 177 million to 184 million barrels of oil equivalent. Daily production guidance was raised to 484,000 to 505,000 barrels a day.

Average daily production in the second quarter totaled approximately 496,000 barrels of oil equivalent, down from 530,000 barrels in the second quarter of last year. But oil comprised about 25% of this year’s production, compared with just 17% of last year’s.

Price realizations on oil were more than $7 a barrel higher than a year ago, while natural gas realizations were lower by $0.16 per million cubic feet. Chesapeake knocked $1.04 off its gathering processing, and transportation costs in the second quarter, lowering it to $6.00 per barrel of oil equivalent.

CEO Doug Lawler commented:

As we formulate our initial 2020 plans, we expect to allocate more capital to oil growth areas, with less capital going toward our gas assets. As a result, with an approximately flat capital program to 2019, we project our 2020 oil volumes will show double-digit percentage growth over 2019, while our gas volumes will show a double-digit percentage decline, yet our projected adjusted EBITDAX remains approximately the same at 2019 levels using today’s lower NYMEX strip pricing and current hedge position.

Analysts have estimated that the third-quarter net loss will come in at $0.05 on revenues of $2.42 billion. For the full year, analysts expect a loss per share of $0.11 and $9.55 billion in revenues.

Once again, Chesapeake’s middling results have been outweighed by rising volume guidance and reduced expenses. The company’s success for the rest of this year now depends on its realized prices for crude oil and natural gas, neither of which is within its control. But investors must think it’s doing all it can to turn a profit because they were pushing the stock higher in Tuesday’s premarket trading. At last look, the stock traded at $1.61, up more than 3%, after tumbling nearly 4% on Monday. The stock’s 52-week range is $1.51 to $4.98, and the low was posted Monday. The consensus 12-month price target on the shares is $2.55.


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