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Chesapeake hit by quarterly loss
US
CHESAPEAKE Energy reported its results for the fourth quarter of 2019 this week, with its quarterly and annual losses illustrating how the low commodity price is hammering some shale producers.
For the fourth quarter of 2019, Chesapeake reported a net loss of $324mn and a net loss available to common stockholders of $346mn, or $0.18 per diluted share. This was down from net income of $605mn and net income available to stockholders of $576mn, or $0.57 per diluted share, for the fourth quarter of 2018. The loss was narrower than expected, but the company’s revenue fell further than forecast, to $1.9bn from $2.8bn in the final quarter of 2018.
For the whole of 2019, Chesapeake reported a net loss of $308mn, and a net loss available to stockholders of $416mn, or $0.25 per share. This marked a drop compared to net income of $228mn and net income available to stockhold- ers of $133mn, or $0.15 per share, a year earlier.
The result is the latest blow for the debt-laden company, which is struggling to stay afloat. Chesapeake’s president and CEO, Doug Lawler, outlined his strategy for the company’s survival on its earnings call. The plan includes cutting capital expenditure by about 30% year on year in 2020 as Chesapeake targets free cash flow, non- core asset sales and an impending reverse stock split.
Chesapeake is aiming to raise $300-500mn of proceeds from the asset sales, but doubts have been raised over the company’s ability to sell at a time when the US market is glutted with natural gas assets in particular. Chesapeake’s share price has tumbled to a new low of $0.31.
“Our price target on this is zero,” said Tudor, Pickering, Holt & Co.’s (TPH) director of explo- ration and production research, Sameer Pan- jwani, commented. “Everyone is concerned with the debt load here. You either have to sell assets, which in this market is pretty tough to do, or you have to generate free cash flow, which they’re not doing well in this environment. They’re backed into a corner.”
In a statement, Lawler sought to emphasise positive aspects of Chesapeake’s performance in the last quarter, given the challenging operating environment. “We are pleased to highlight our strong 2019 operational performance, deliv- ering fourth quarter oil production of 126,000 barrels of oil per day and increasing our oil mix to 26% of total production, the highest percent- age in company history,” he said. “These results, combined with certain lower cash costs, yielded adjusted Ebitdax growth of 19%, or 15% per bar- rel of oil equivalent (boe), compared to the 2018 fourth quarter, when we had significantly higher commodity prices.”
For 2020, the company is projecting capex of $1.3-1.6bn, down from $2.2bn in 2019, with around 80% of spending expected to be allocated to what Chesapeake describes as higher-margin oil opportunities. Lawler warned that “signifi- cant” portions of the company’s portfolio are not being invested in as spending is cut back.
The company has $209mn of bonds coming due in August, out of a total debt load of over $9bn. It is increasingly thought that Ches- apeake is heading for a default, with com- modity prices showing no sign of improving anytime soon.™
For 2020, the company is projecting capex of $1.3-1.6bn, down from $2.2bn in 2019.
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