Last year was a rather forgettable one for investors in Chesapeake Energy (CHKA.Q) as its stock plunged 47%. The oil and gas company will officially close the book on 2018 later this week when it reports its fourth-quarter results. Here are a few things investors can expect to see in that report.
Expect solid production results
Chesapeake Energy has already given its investors a glimpse of what they will likely see in its fourth-quarter report, since it released a production update in early January. This report showed that Chesapeake Energy ended 2018 on a high note as its total production averaged between 462,000 and 464,000 barrels of oil equivalent per day (BOE/D) during the fourth quarter, which was ahead of analysts' expectations that output would average 448,000 BOE/D during the period. Oil production, likewise, came in above what analysts anticipated; the company said it averaged between 86,000 and 87,000 barrels per day (BPD), which was higher than their forecast of 85,200 BPD.
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While both numbers were below the 537,000 BOE/D and 89,000 BPD the company pumped out during the third quarter, that's because it sold its assets in the Utica shale. Chesapeake, however, was able to fully replace the lost oil volumes from that region by year end thanks to strong growth out of the Powder River Basin.
Be prepared for earnings to decline
Chesapeake Energy reported surprisingly strong profitability during the third quarter: its $174 million, or $0.19 per share, of adjusted net income beat analysts' expectations by $0.04 per share. Investors, however, completely overlooked that strong result after the company stunned them by agreeing to buy Eagle Ford Shale-focused driller Wildhorse Resources.
The company will have a hard time beating that result during the fourth quarter, since oil prices took a tumble. Because of that, most analysts anticipate that earnings will fall, with the consensus that the company will report $0.17 per share of adjusted net income. Investors should see if the company was able to meet those muted expectations. If it misses, they should take a close look at costs, since we already know that production was strong during the quarter.
Anticipate some changes to its 2019 outlook
In addition to reporting its financial results, Chesapeake Energy will also likely unveil a detailed look at its guidance for 2019. The company already provided a sneak preview in its production report, stating that it planned to reduce capital expenses by lowing its rig count 20% compared to last year. At the time, the company noted that it had 18 rigs running but expected that to fall to 14 in 2019.
That plan might undergo some changes, since the company recently completed its merger with Wildhorse. Chesapeake Energy noted that it planned on running four rigs on Wildhorse's acreage this year. Further, given the continued volatility in the oil market, and the fact that many of its peers have announced spending cuts, Chesapeake Energy might further reduce its activity levels. Ideally the company will match its peers and cut spending to align it with the cash flows it can produce, assuming oil averages $50 a barrel this year.
Check out the latest Chesapeake Energy earnings call transcript.
Don't expect a banner quarter
Chesapeake Energy already gave the market a pretty good idea of what to expect when it reports results later this week. We know it delivered solid production and that earnings will likely fall due to lower oil prices and the impact of asset sales. The company also probably maintained a relatively muted outlook for 2019 given that most of its peers are reducing spending to match their cash flows. The hope is that it won't unveil any more surprises this year, such as deciding to outspend cash flow, since that would likely put more downward pressure on its stock price.
