Stock Update (NYSE:CHK): Chesapeake Energy Corporation Provides 2017 Guidance And Operational Update


Chesapeake Energy Corporation (NYSE:CHK) announced additional details of its 2017 guidance outlook. Highlights include:

  • Projected total capital expenditures guidance of $1.9 $2.5 billion, including capitalized interest
  • Projected total company production guidance ranging from a decline of 3% to growth of 2%, adjusted for asset sales
  • Exit rate oil production projected to grow by 10% in 2017, while exit rate gas production projected to remain relatively flat, adjusted for asset sales
  • Plan to operate an average of approximately 17 drilling rigs, compared to 10 rigs in 2016

Doug Lawler, Chesapeake’s Chief Executive Officer, commented, “The execution of our 2017 capital program will position Chesapeake for significant production and earnings growth and cash flow neutrality in 2018. As noted during our October 2016 Analyst Day, our 2017 capital program is driven by improved capital efficiencies and profitability from our significant portfolio of high rate of return drilling opportunities. We will maintain our financial and operational flexibility with a relentless focus on driving differential performance.  We look forward to building on our progress, both financially and operationally, in 2017 and beyond.”

2017 Capital Program and Production Outlook

Chesapeake is budgeting planned total capital expenditures (including capitalized interest) in the range of $1.9 – $2.5 billion in 2017, compared to total capital expenditures of approximately $1.65 – $1.75 billion in 2016, excluding 2016 proved property acquisitions and the repurchase of volumetric production payment (VPP) transactions. The company is narrowing its range of projected capital as it gains confidence in market conditions supporting a return to projected production growth in the second half of the year. The company is targeting total production of 194 – 205 million barrels of oil equivalent (mmboe) in 2017, or average daily production of 532 – 562 thousand barrels of oil equivalent (mboe), representing a decline of 3% to modest growth of 2% compared to 2016, after adjusting for asset sales. Of the 2017 projected total production, approximately 33 – 35 mmboe is estimated to be crude oil, 18 – 20 mmboe is estimated to be natural gas liquids and 860 – 900 billion cubic feet is estimated to be natural gas.

Chesapeake plans to operate an average of approximately 17 rigs in 2017, an increase from an average of 10 rigs in 2016. The company intends to spud and place on production approximately 400 and 450 gross operated wells in 2017, respectively, compared to 213 and 428 wells in 2016, respectively. A complete summary of the company’s guidance for 2017 is attached to this release.

Operations Update

Lawler continued, “We have a number of operational results we are looking forward to in 2017, including our return to the Powder River Basin (PRB) and our first results from the Turner formation in the 2017 second quarter, along with additional results from the Sussex and Niobrara and a Mowry test later in the year. In total, we plan to place approximately 30 wells on production in the PRB in 2017. In the Mid-Continent area, we plan to place approximately 100 wells on production during 2017, with roughly 60 of those wells planned from the Oswego formation. The Mid-Continent is expected to provide oil growth in 2017 through development drilling in the Oswego and our exploitation of ‘the Wedge play.’ Finally, we plan to operate approximately six rigs and place approximately 165 wells on production in the Eagle Ford Shale in South Texas. Several new tests are planned in the Eagle Ford, which include more than 10 extra-long lateral wells reaching approximately 15,000 feet and we also plan to test the Upper Eagle Ford and Austin Chalk formations. Our increased activity in the Eagle Ford, Oklahoma and the PRB is expected to result in oil growth of approximately 10% from year-end 2016 to year-end 2017, with continued growth in our oil volumes projected to be over 20% by year-end 2018.

“In our natural gas plays, our progress in the Haynesville Shale in Louisiana continues to improve with recent wells placed on production reaching approximately 30 – 45 million cubic feet (mmcf) of gas per day. Our plans for 2017 in the Haynesville include utilizing three rigs and placing approximately 35 wells on production. In Northeast Appalachia, our activities in the Marcellus Shale in Pennsylvania and the Utica Shale in Ohio will be more focused on completing inventory wells compared to drilling and completing new wells. We also plan to begin applying more aggressive fracture stimulation procedures to wells in both the Marcellus and our dry gas Utica areas during the year. We are projecting that natural gas production growth will be relatively flat from year-end 2016 to year-end 2017, but expect that our gas volumes will return to growing again from year-end 2017 to year-end 2018. Nonetheless, we are projecting that these world-class gas producing areas will generate significant free cash flow for us compared to the capital invested during both 2017 and 2018.”

Shares of Chesapeake Energy closed yesterday at $6.33, down $0.05 or -0.78%. CHK has a 1-year high of $8.20 and a 1-year low of $1.65. The stock’s 50-day moving average is $6.78 and its 200-day moving average is $6.47.

On the ratings front, CHK has been the subject of a number of recent research reports. In a report issued on January 31, Credit Suisse analyst Mark Lear maintained a Hold rating on CHK, with a price target of $7.00, which represents a potential upside of 11% from where the stock is currently trading. Separately, on January 26, Barclays’ Thomas Driscoll maintained a Sell rating on the stock and has a price target of $5.00.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Mark Lear and Thomas Driscoll have a yearly average return of 13.5% and 4.9% respectively. Lear has a success rate of 64% and is ranked #312 out of 4430 analysts, while Driscoll has a success rate of 56% and is ranked #666.

Sentiment on the street is mostly neutral on CHK stock. Out of 9 analysts who cover the stock, 4 suggest a Hold rating , 3 suggest a Sell and 2 recommend to Buy the stock. The 12-month average price target assigned to the stock is $7.75, which implies an upside of 22% from current levels.

Chesapeake Energy Corp. engages as a natural gas and oil exploration and production company. It operates through the Exploration and Production; Marketing, Gathering and Compression segments. The Exploration and Production segment focuses on finding and producing natural gas, oil and natural gas liquids. The Marketing, Gathering, and Compression segment deals with the marketing, gathering, and compression of natural gas, oil, and natural gas liquids primarily from Chesapeake-operated wells.