Updated Research Report on Chesapeake - Analyst Blog

On Mar 31, 2014, we issued an updated research report on Chesapeake Energy Corporation CHK. The company posted fourth-quarter 2013 earnings of 27 cents per share, falling behind the Zacks Consensus Estimate of 40 cents. However, the reported figure improved from the year-earlier profit of 26 cents a share. Quarterly revenues improved to $4,541.0 million from $3,539.0 million a year ago. The top line also got the better of the Zacks Consensus Estimate of $1,758.0 million.

Chesapeake – an independent oil and gas company – registered a significant fall in natural gas price realizations during the fourth quarter. Average realizations for natural gas were $1.90 per per thousand cubic feet (Mcf) compared with $2.07 per Mcf in the year-earlier quarter. Also oil was sold at $89.58 per barrel, down from the year-ago price of $92.23 per barrel.

Chesapeake plans to invest heavily in the development of its liquids-rich holdings in the Eagle Ford Shale, Granite Wash and Mississippi Lime. The company's daily production for the reported quarter averaged approximately 665,100 barrel of oil equivalent, an increase of 2% from the 2012 fourth quarter and 1% decrease from the 2013 third quarter. This decrease is primarily due to a planned reduction in well connections.

Severe weather also impacted the company's production in October and December. Average daily production in the fourth quarter consisted of approximately 111,300 barrels per day (Bbl/d) of oil, 63,700 Bbls of NGL and 2.9 billion cubic feet of natural gas. As the company shifts its focus to more liquid-rich plays, it expects natural gas production to fall in 2014, while liquids production is expected to increase approximately 14–18% year over year. For 2014, Chesapeake expects capital expenditure in the range of $5,200–$5,600 million.

However, Chesapeake's results are vulnerable to fluctuations in the natural gas market, since natural gas accounted for about three-fourth of its 2013 production.

Key Picks from the Sector

Chesapeake Energy currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.  Meanwhile, one can consider better-ranked players in the energy sector like Valero Energy Corporation VLO, Range Resources Corporation RRC and Helmerich & Payne, Inc. HP. All these stocks sport a Zacks Rank #1 (Strong Buy).