Oil and natural gas producer Chesapeake Energy Corp. (NYSE: CHK) on Wednesday issued a preliminary fourth-quarter operational update. Investors wanting to know whether the struggling company can stay afloat got a bit of good news.
Chesapeake expects fourth-quarter oil production to range between 125,000 and 126,000 barrels a day, an increase of 10,000 to 11,000 barrels compared with third-quarter 2019 production. The company also estimates that production on a barrels of oil equivalent basis will be in a range of 476,000 to 478,000 barrels a day, essentially flat with third-quarter production.
Oil production is set to account for about 26% of Chesapeake’s total hydrocarbons production in the fourth quarter, slightly more than the 21% posted in the same quarter last year.
Natural gas prices are expected to average $2.57 per million cubic feet in 2019, some 59 cents below the 2018 average. The expected average price for 2020 is 24 cents below the 2019 price. None of this is working in Chesapeake’s favor.
The U.S. Energy Information Administration’s most recent forecast for 2019 crude prices calls for an average of $57 a barrel, rising to $59 a barrel in 2020 and $62 a barrel in 2021. Those estimates are almost certainly too optimistic for this year and next.
The company’s financial picture also brightened with the retirement of $900 million in indebtedness for one of its wholly owned subsidiaries, Brazos Valley Longhorn, acquired in late 2018 in a $4 billion merger deal with Wildhorse Resource Development. At the time of that deal, Chesapeake stock was trading at nearly $4 a share.
CEO Doug Lawler offered some non-specific comments on the company’s performance:
We delivered strong cash flow during the [fourth] quarter on lower costs and higher oil volumes. Natural gas and natural gas liquids volumes were sequentially lower due to our decisions to direct capital to the highest-margin opportunities in our portfolio, enhancing our profitability. Our strong results in the fourth quarter have continued into early 2020 and are setting the foundation for the company to reach free cash flow this year. We remain committed to achieving further meaningful debt reduction through asset sales, capital markets transactions and cost discipline.
Chesapeake is scheduled to report fourth-quarter results on February 26. Analysts are expecting a loss of $0.06 per share on revenues of $2.11 billion. For the full fiscal year, the estimated net loss totals $0.25 per share on $8.8 billion in revenues.
In the mid-morning Wednesday, Chesapeake stock traded up more than 6%, at $0.55 in a 52-week range of $0.51 to $3.57. It went on to close regular trading at $0.54 per share. The consensus 12-month price target on the stock is $0.92. Trading volume is more than 83.5 million shares daily.