Chesapeake Earnings Falter on Collapsing Prices, Capex Slashed

For the full year, Chesapeake reported EPS of $1.49 on revenues of $20.95 billion, compared with EPS of $1.50 and revenues of $17.51 billion in 2013. The consensus estimates called for EPS of $1.61 on revenues of $20.58 billion.

In the fourth quarter, daily production averaged 729,000 barrels of oil equivalent per day, up 12% year-over-year, after an adjustment for asset sales. Daily oil production rose 7% year-over-year in the quarter, natural gas liquids (NGL) production rose 40% and natural gas production rose 9%.

ALSO READ: Private Equity Bottom Fishing in Oil and Gas, Sign of a Bottom?

Chesapeake’s average realized price per barrel of oil in the fourth quarter was $76.40, down from $89.58 in the fourth quarter a year ago and down from $84.81 in the third quarter. Natural gas prices per 1,000 cubic feet fell $0.18 year-over-year and $0.37 sequentially. NGL prices were down $18.65 a barrel year-over-year and down $9.84 a barrel sequentially.

Drilling and completion costs for the full year fell from $5.47 billion a year ago to $4.47 billion this year. Operating cash flow slipped from $995 million a year ago to $873 million in the fourth quarter.

The company’s CEO said:

Because of these accomplishments and the progress we have made as a company in 2014, Chesapeake is well positioned to remain strong and flexible in 2015. We have taken and continue to take appropriate steps not only to weather the current difficult commodity price environment we face today, but to thrive in it. Chesapeake became a much stronger company in 2014, and we are looking forward to becoming even stronger in 2015.

Chesapeake said it is budgeting capital spending for 2015 at $4.0 billion to $4.5 billion, down about 26% before acquisitions year-over-year and down 37% over total 2014 capex. The company is targeting daily production of more than 645,000 barrels of oil equivalent in 2015 (235 million to 240 million barrels total). Total crude oil production for the year is forecast at 30 million to 40 million barrels.

Chesapeake will operate 35 to 45 rigs in 2015, down 38% from an average of 64 rigs in 2014 and the lowest total since 2004.

The company did not offer financial guidance, but consensus estimates are calling for first-quarter EPS of $0.09 on revenues of $4.23 billion. For the full 2015 fiscal year, Chesapeake is expected to post EPS of $0.49 on revenues of $18.29 billion.

ALSO READ: 5 Energy Buyout Candidates as Oil Plunge Continues

Fourth-quarter results are a step backward in Chesapeake’s recovery. Crude prices have fallen through the floor and do not look to improve soon. Natural gas prices are also lower and NGL prices have absolutely tanked. The company plans to focus 60% of its drilling and completion spending on its assets in the Eagle Ford and Utica shale plays, up from 50% in 2014. The company expects to operate 12 to 14 rigs in the Eagle Ford compared with 20 in 2014 and to operate three to five rigs in the Utica shale compared with eight a year ago.

Chesapeake’s shares traded down about 3.3% in Wednesday’s premarket, at $19.22 in a 52-week range of $16.41 to $29.92. The consensus target price for the shares was around $22.00 before the report.