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Chesapeake Energy’s Q1 Earnings Disappoint Investors

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Chesapeake’s earnings

On May 8, Chesapeake Energy (CHK) reported an adjusted net loss of $0.02 per share for the first quarter of 2019 compared to earnings of $0.21 per share in the previous quarter and analysts’ consensus estimate of $0.14 per share.

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Natural gas prices fell 23.1% in the first quarter on a sequential basis. CHK operates with a production mix of 68.2% natural gas. In fact, its realized prices on natural gas sales declined 3.4% on a sequential basis. Moreover, average realized prices on NGLs (natural gas liquids) has also fallen over 20% in this period. Rising natural gas production is the main reason behind the fall in natural gas prices this year. CHK’s net production grew 2.3% on a quarter-over-quarter basis.

Future outlook

Natural gas prices might stay near their 34-month low this quarter because of shrinking demand and a rise in natural gas supplies. However, US crude oil prices, which are up ~15.7% compared to the last quarter might lift earnings in Q2 2019. US crude oil prices had accounted for ~46% of its total commodity sales. For the remaining 70% to 80% of 2019 forecasted production, CHK hedged oil at $58.75 per barrel and natural gas at $2.83 per mcf (thousand cubic feet) on average.

In fact, based on Reuters’ analysts’ estimates, CHK’s total revenue is expected to rise 14.3% this quarter on a sequential basis. On May 7, CHK closed at $2.78. The mean target price for the stock in the next year is $3.07, which implies a possible upside of ~10.6%.

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