Chesapeake Energy (CHK, Financial) has continuously met or exceeded its production targets in recent quarters, met or lowered its capital expenditure budget and repeatedly lowered its cash cost on a quarter-over-quarter basis for the previous four quarters. All these points indicate that the company is getting better.
Delivering strong improvements
The operational and financial improvements achieved by the company in the previous year has well-positioned Chesapeake to become greatly competitive in a weaker commodity price arena. At present, Chesapeake has considerable flexibility in its capital program and action levels, the solid quality of its varied, alternative portfolio coupled with its efficient and profitable growth and financial discipline strategies allowing an impressive investment opportunity.
On quarter-over-quarter basis, Chesapeake has delivered double-digit production growth in the Utica, Powder River Basin, Haynesville and Eagle Ford assets. Chesapeake delivered an average production of 726,000 barrels of oil equivalent per day during the third quarter, representing an 11% expansion over previous year and 5% sequential growth.
Accelerating production
Chesapeake is expanding the low-end guidance of its 2014 annual production by 10,000 barrels of oil equivalent per day and believes its year-end adjusted production rate to be in 730,000 and 750,000 barrels of oil equivalent per day range. Overall, Chesapeake plans to sell its Southern Marcellus assets. This strategic transaction is believed to provide Chesapeake with a high value and several other opportunities are anticipated to continue concreting the shareholder value.
Chesapeake will provide its 2015 production and capital outlook in the beginning of 2015. The supreme assets quality, its highly motivated employees, impressive operating efficiencies recorded in its capital program and its strong financial position enables higher optionality and flexibility for its program in this unpredictable market.
Chesapeake is deeply and strongly committed to turn into a leading cortile E&P company and it is progressing rapidly and progressively towards this goal.
Although 2013 was its transformational year, 2014 is considered as a foundational year, accelerating financial, operating and capital efficiencies whereas enhancing its competitiveness. Going forward accelerated capital efficiency enhancements are expected throughout 2015 with an ongoing focus on delivering superior growth and value to its shareholders.
Chesapeake’s cash cost per Boe also improved significantly both sequentially and year-over-year basis. The company also increased its projected natural gas differentials by $0.05 owing to the continued weaker regional prices in the Northeast.
The gas producers prices attained for the Marcellus production are generally weak since the last six months because of significant gas volume supply and being deficient of local demand. However, these regional and local prices are expected advance in the coming four to five months.
In capital investment program, its competitive capital investments in the third quarter declined 8% to 1.351 billion as against 1.461 billion during the same period last year. Chesapeake is continuously driving higher capital efficiency in its E&P business by offering higher production at weaker capital investment levels and expects to take this forward into the future.
Key metrics and conclusion
The trailing P/E and forward P/E ratios of 28.74 and 13.01 represent solid cost-cutting efforts of the company. Moreover, it is better than the industry’s average P/E of 17.57, going forward. The quarterly revenue growth and quarterly earnings growth of 17.20% and 227.70% respectively depicts impressive growth in shareholder earnings. Finally, investors are advised to invest in Chesapeake Energy looking at the solid long-term growth prospects indicated by the CAGR for the next 5 years per annum of 6.47% comparable to the industry’s average of 16.01% and expect promising returns in a long run.
