Chesapeake Energy Corporation (CHK) Stock Hits Headwind After Getting Over the Hump
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Will oil and gas giant Chesapeake Energy Corporation (NYSE:CHK) ever actually turn an annual profit again? The last time it’s seen any positive net income for a full-year stretch was 2014, and that was a “just barely” situation.
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If you take a closer look at the quarterly earnings trend, though, you’ll notice something unusual about its first quarter of the year… the bottom line wasn’t printed in red ink.
One quarter doesn’t make a trend, to be sure, and there’s no doubt it was the rise in crude prices that drove the swing to profitability (price strength that has evaporated in the meantime). Nevertheless, for investors who had shelved CHK stock as a lost cause, it may be time to take it off the shelf and blow the dust off. This name offers some new hope.
No Longer on the Defensive
Just as a quick recap, Chesapeake Energy was hardly immune to the same illness that infected all other energy stocks when crude prices hit a wall in 2014.
In step with oil’s trip from $107 per barrel in mid-2014 to a low of less than $30 per barrel in 2016, CHK stock slid from $31 to less than $2 for the same time frame, while earnings tumbled from 2014’s profit of $1.3 billion to 2016’s loss of $4.9 billion.
Brutal.
Yet, the first quarter’s profit of $75 million — on a 38% increase in revenue, no less — is a small glimmer of hope. As Wunderlich Securities analyst Irene Haas put it in front of the early-May report, Chesapeake Energy “should be near an inflection point for production and return to growth in the coming months.”
That was also the point in time when the market’s, and the company’s, focus shifted. SunTrust Robinson Humphrey analyst Neal Dingmann suggested that conference will “focus on the operations side” of the company’s business, as opposed all the divestitures that helped keep the organization afloat in the midst of oil’s rout.
The pair of analysts may have known what they were talking about. It was only late last month Chesapeake CEO Robert Lawler commented on the company’s Eagle Ford property at a JPMorgan energy conference :
“We anticipate to spot about 180 wells this year in turn – in line almost the same number. This is our oil production growth engine, the EBITDA engine for the company. This asset is very, very strong and relatively undeveloped. We estimated present that we drilled about 27% of the opportunities, represented in the Lower Eagle Ford, Upper Eagle Ford and in the Austin Chalk. We’ve greater than 2 billion of barrels of net resource potential here and with that current 185 wells drilled a year, about 25 years of activity.”