Chesapeake Energy To Post A Surge In 4Q'16 Earnings; Increases 2017 Capex By Almost 30%

Chesapeake Energy ( CHK ), one of the largest natural gas producers in the US, is slated to report its December quarter and full year 2016 results before the market opens on 23rd February 2017(( Chesapeake Energy To Announce Its December Quarter Results , 31st January 2017, Similar to the last quarter, the independent oil and gas producer is expected to post a strong improvement in its bottom-line on the back of its relentless efforts to minimize its operating costs, and the sharp recovery in commodity prices during the quarter. However, for the full year 2016, the company's performance is likely to be significantly weaker compared to 2015, as the commodity prices remained much lower than in the previous year.


That said, Chesapeake has been proactive in deciding their strategy for 2017, and has already given out its detailed guidance for the year(( Credit Suisse Energy Summit 2017 , February 2017, . In terms of production, the US-based company expects to grow its total output in the range of (3%) to 2%, after adjusting for asset sales of $2 billion in 2016. In particular, the exploration and production company aims to expand its oil production by approximately 10% by the end of 2017, and by 20% between 2017 and 2018. A majority of the oil growth is likely to come from the company's assets in Eagle Ford, Mid-Continent, and the Powder River Basin ( PRB ), while the natural gas expansion will be driven by the strong dynamics in the Haynesville, Utica, and Marcellus region.


Source: Credit Suisse Energy Summit 2017, February 2017

Chesapeake will continue to deploy additional rigs in these key basins in order to augment its growth plans. Yet, the company will remain focused at controlling its drilling and production costs to improve its profitability in line with the expected rebound in commodity prices. However, the highlight of the company's guidance is the jump in the capital spending budget for 2017. As opposed to restricting capital expenditure in 2016 due to depressed oil and gas prices, Chesapeake has allocated around $2.2 billion (mid-point) for its capital spending needs for 2017. This is almost 30% higher compared to what the company spent in 2016, and indicates that the E&P company expects the commodity markets to revive in the forthcoming quarters.


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Furthermore, with the growing optimism about the revival of the commodity markets, Chesapeake has recently reinstated the payment of dividends on its outstanding convertible preferred stock((Chesapeake Reinstates Quarterly Dividend For Preferred Stocks, 20th January 2017, In fact, the oil and gas producer has also announced the payment of dividends in arrears to the preferred shareholders, reinforcing investor confidence in the company and its future.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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