Net profit margin comparison
Along with a drop in their revenues, both companies saw declines in their net profit margin. CXO saw a net loss margin of ~1.3% in 1Q16, while CHK saw a net loss margin of 6%.
CXO’s net margin dipped for the first time since 2014 in 4Q15 as a result of crude oil prices dropping to their lowest levels in several years. However, CXO’s net margin has held up much better than CHK’s as a result of its hedges. The company has 73% of its expected 2016 oil production locked in, and it is also aggressively hedged on the natural gas side. This has positioned it to benefit greatly if oil prices continue to rally.
Many upstream companies such as Whiting Petroleum (WLL), Cabot Oil & Gas (COG), and EQT Corporation (EQT) are also hedged in 2016. Combined, these companies constitute ~10.2% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
On the other hand, CHK has seen lower margins since 3Q14, and its revenues have dipped significantly this year. Like CXO, CHK hedged itself in 2015 and 2016. So, the recent dip in its revenues is likely the result of lower production volumes, which we’ll talk about in the next part of this series.
In its recent 1Q16 earnings release, CHK noted that its 1Q16 net loss was driven by a noncash impairment “largely resulting from decreases in the trailing 12-month average first-day-of-the-month oil and natural gas prices.”
Continue to the next part of this series to read how CXO and CHK compare on production growth rates.