Chesapeake Energy Corporation Continues to Outperform

Chesapeake Energy's first quarter earnings show why the market loves the natural gas producer.

May 12, 2014 at 4:13PM

Many investors believe that the market is a better predictor of the future than any market pundit. This is because the market reflects the collective intelligence of thousands of investors, rather than the opinion of one. 

Because the market is a good predictor of the future, given the remarkable strength of shares of Chesapeake Energy (NYSE:CHK) recently, it should come as no surprise that the company reported excellent first quarter earnings. 

First quarter earnings show strong growth 
For the quarter, Chesapeake Energy reported revenues of $5.04 billion, which increased 47% year over year, and adjusted earnings of $0.59 a share, which increased 97% year over year. Both revenues and adjusted earnings beat analyst expectations. 

In addition to better top and bottom lines, Chesapeake Energy's adjusted EBITDA rose 34% year over year to $1.5 billion while the company's operating cash flow rose 37% year over year to $1.614 billion.

The company's adjusted EBITDA and operating cash flow increased mainly due to higher realized prices and lower costs.  

The company's realized natural gas price, for example, increased from $2.13 per thousand cubic feet to $3.27 per thousand cubic feet. Its average production expense, meanwhile, fell 8% year over year to $4.73 per barrel of oil equivalent. Adjusted G&A expenses also fell 27% year over year to $1.09 per barrel of oil equivalent.

On the whole, the company averaged production of 675,200 barrels of oil equivalent a day, or a 11% increase year over year. The production increase is impressive given that total capital expenditures actually fell 50% year over year to $850 million. In short, Chesapeake Energy is doing more with less.

With natural gas prices rising and the American economy picking up steam, leading natural gas companies like Chesapeake Energy and EQT Corp (NYSE:EQT) have strong tailwinds behind them. Given that natural gas prices are so much higher outside the United States, domestic natural gas prices may continue to rise in the long run and take the share prices of leading natural gas producers with them. 

On a company level, Chesapeake Energy's earnings reflect a company with improving fundamentals. Chesapeake Energy's profits and revenues are rising as natural gas prices rise. Management is doing a good job at execution. The company's total production is growing at a double-digit percentage rate even though the company is spending less in capital expenditures. Perhaps more importantly, the company is growing its higher margin natural gas production at a very fast rate. Chesapeake Energy's first quarter natural gas liquid production rose 55% year over year, and the company's liquid mix is now 29% of total production versus 24% one year ago. By producing more higher-margin liquids, Chesapeake Energy is becoming less dependent on natural gas prices and more profitable. 

The bottom line
Chesapeake Energy's outlook for 2014 reflects more of the same positive trend. For the full year, management expects total production to grow by 9%-12% and natural gas liquids production to grow by 58%-63%.  The company also hopes to reduce capital expenditures from $6.7 billion in 2013 to $5.4 billion. If these trends continue, Chesapeake Energy should have significant cash flow to pay down debt or buy back shares by 2015.

With its stock making 52-week highs after earnings, the market certainly loves Chesapeake Energy. As long as natural gas prices don't head south, Chesapeake Energy should continue to outperform.

3 ways to invest in the American energy renaissance
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


Jay Yao has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers