We reaffirmed our Neutral recommendation on
Chesapeake Energy Corporation
) on Dec 30, 2013. The company's focus on the liquid-rich plays
like Utica Shale is expected to contribute highly to its growth
momentum going forward. However, a weak financial profile with
huge debt balance remains a major concern.
Chesapeake - an independent oil and gas company - registered
higher production on lower operating costs from its underlying
assets during the third quarter.
Chesapeake plans to invest heavily in the development of its
liquids-rich holdings in the Eagle Ford Shale, Granite Wash and
Mississippi Lime. Most importantly, the company's efforts seem to
produce desirable results, reflected by an almost 22%
year-over-year increase in oil production during the third
As the company shifts its focus to more liquid-rich plays, it
expects natural gas production to fall in 2013, while liquids
production is expected to increase approximately 28-34% year over
Chesapeake expects 2013 total production in the band of
1,440-1,468 Bcfe. Natural gas is expected to contribute
1,080-1,090 Bcf to the total production. Oil production forecast
has been increased to 40-42 million barrels/MMBbls from 38-40
MMBbls projected previously, and NGL will likely be in the 20-21
Chesapeake is on track with its plan of reducing its long-term
debt through monetizing its assets and cutting lease-hold
spending. This monetization initiative is mainly aimed at coping
with the mounting debt level as well as to fill the funding gap
for its 2014 expenditures that resulted from the volatile natural
However, Chesapeake's results are particularly vulnerable to
fluctuations in the natural gas market, since natural gas
accounted for about three-fourth of Chesapeake's first nine
months of 2013 production.
Other Stocks to Consider
Currently, Chesapeake has a Zacks Rank #3 (Hold). Stocks in the
sector that are currently performing well include
Enbridge Energy Management LLC
Harvest Natural Resources Inc.
Clayton Williams Energy, Inc.
), each with a Zacks Rank #1 (Strong Buy).
CHESAPEAKE ENGY (CHK): Free Stock Analysis
WILLIAMS(C)ENGY (CWEI): Free Stock Analysis
ENBRIDGE ENERGY (EEQ): Free Stock Analysis
HARVEST NATURAL (HNR): Free Stock Analysis
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