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How Chesapeake Stock Reacted to 3Q17 Results

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How Chesapeake Stock Reacted to 3Q17 Results PART 1 OF 4

Did Chesapeake’s 3Q17 Revenue and Earnings Meet Expectations?

Chesapeake’s 3Q17 revenue

Chesapeake Energy (CHK) reported its 3Q17 earnings on November 2, 2017. The company reported revenue of ~$1.9 billion, lower than analysts’ estimates of ~$2.1 billion as we can see below. Chesapeake Energy’s revenue in both 3Q16 and 2Q17 was ~$2.3 billion.

Did Chesapeake’s 3Q17 Revenue and Earnings Meet Expectations?

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As we can see, CHK’s revenue was lower both on a year-over-year and sequential basis. The year-over-year decline was likely because of lower year-over-year production volumes, which offset higher realized prices. The sequential decline in revenues was likely due to lower realized energy prices, which offset higher sequential production volumes. Average realized prices on a barrel of oil equivalent (or boe) basis (including the effect of hedges) was $21.67 per boe in 3Q17 compared to $17.30 in 3Q16 and $22.42 per boe in 2Q17. We’ll discuss CHK’s 3Q17 production volumes in the following part of the series.

Oil, natural gas, and NGL (natural gas liquids) revenue in 3Q17 was ~$979 million compared to ~$1.2 billion in 3Q16 and ~$1.3 billion in 2Q17.  Marketing, gathering and compression revenues in 3Q17 were $964 million compared to ~$1.1 billion in 3Q16 and $1 billion in 2Q17.

Chesapeake’s 3Q17 earnings

Chesapeake Energy’s adjusted EPS (earnings per share) in 2Q17 were $0.12, slightly higher than Wall Street analysts’ consensus EPS estimate of $0.11. Chesapeake Energy’s adjusted EPS in 3Q16 was $0.09, while in 2Q17, it was $0.18.

As we can see, CHK’s EPS was higher on a year-over-year basis, despite higher year-over-year revenues. The increase was due to lower operating expenses related to depreciation, depletion, and amortization (or DD&A). DD&A expenses in 3Q17 were $228 million compared to $251 million. Lower operating costs and expenses in 3Q17 can also be attributed to the absence of impairment charges in 3Q17 as compared to 3Q16. Lower sequential earnings can be attributed to lower sequential revenues.

Peer comparison

In comparison, Chesapeake Energy’s upstream peers EQT (EQT) and Noble Energy (NBL) reported 3Q17 EPS of $0.12 and -$0.02, respectively. To know more about how these companies performed in 3Q17, read Why EQT Stock Fell after Its 3Q17 Earnings and Noble Energy Beat Earnings and Revenue Estimates, Stock Fell.

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