How Will Chesapeake Handle the Post-McClendon Era?

On Wednesday, Chesapeake Energy (CHK +0.00%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Chesapeake has been a major natural gas and oil producer for years, but it has faced several controversial episodes with its founder and former CEO Aubrey McClendon along the way. Now that McClendon has stepped down, investors are wondering which direction the company will move. Let's take an early look at what's been happening with Chesapeake Energy over the past quarter and what we're likely to see in its quarterly report.

Stats on Chesapeake Energy

Source: Yahoo! Finance

Can Chesapeake Energy keep growing under new leadership?
Analysts have gotten a lot more optimistic over the past few months about Chesapeake's earnings prospects. They've raised their estimates for the just-ended quarter by $0.03 per share as part of a larger $0.08 upgrade on their 2013 EPS consensus. The stock's response has been muted, however, with gains of less than 5% since late January.

As much attention as Chesapeake's executive office has gotten recently, investors have been just as worried about the company's financial situation. Low natural-gas prices have made it a lot more challenging for Chesapeake to maintain its substantial debt, and the company has had to sell off assets as a result. The company has also had to cut back on its capital expenditures, seeking to keep its spending this year under $6 billion.

Chesapeake is still seeking to raise more cash through further asset sales this year. In February, Chesapeake sold a 50% interest in some of its Mississippi Lime acreage to China's Sinopec (SHI +0.00%). Then, earlier this month, Chesapeake said it's looking to sell further acreage in the Utica Shale play in the U.S. Midwest. Motley Fool contributor Tyler Crowe believes that Chevron (CVX 1.39%) might be a natural buyer for Chesapeake's Utica property, given its recent commitment to focusing on unconventional domestic energy plays for further growth.

The problem that Chesapeake faces is that other companies are following the same strategy to try to get through the tough times for natural gas. In particular, SandRidge Energy (NYSE: SD) has followed Chesapeake's road map toward greater production of oil and natural gas liquids, and with so little interest in dry-gas assets, no company selling them off will get full value from a buyer. If the recent recovery in natural-gas prices can take root, then and only then will interest in those assets start to build up again.

The key to Chesapeake's quarterly report will be for the company's new leadership team to present a viable strategy for the company going forward. With the potential for a leadership vacuum to reduce investors' confidence in the energy company, Chesapeake needs to quash those concerns and move forward aggressively with its plans.

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