10-year

10-Year Anniversary Promotion (20% off)

Join GuruFocus Premium Membership Now for Only $279/Year

Once a decade discount

Save up to $500 on Global Membership.

Don't Miss It !

Free 7-day Trial
All Articles and Columns »

Here's Why Chesapeake Energy Is Set to Get Better

August 27, 2014 | About:
kcpl

kcpl

1 followers

Natural gas maker Chesapeake Energy (CHK) has seen a noteworthy drop in its fortunes in the last one month. Chesapeake shares have dropped recently, underperforming the S&P 500. However, the slowdown looks provisional, and Chesapeake should have the capacity to make a strong rebound because of a couple of simple reasons.

Increase in generation and better estimating to drive development

Chesapeake has now increased its generation development direction. Its capacity to convey development and capital productivity shows the stability of its assets as the industry slowly comes back on the development track. The organization's restoration, after harried times under previous CEO Aubrey McClendon, is continuously helped by higher regular gas prices.

Obviously, the EIA has knock up the regular gas estimating forecast significantly, and it won't be surprising on the off chance that it continues to do likewise later on as characteristic gas interest is on the rise. Truth be told, as per the EIA, characteristic gas consumption is relied upon to develop from 25.6 trillion cubic feet (Tcf) in 2012 to 31.6 Tcf in 2040, determined by increased usage across an assortment of sectors. Chesapeake is positioning itself to take advantage of this normal development sought after by increasing its generation rate.

Case in point, the normal day-by-day generation rate of Chesapeake in the Eagle Ford is right now 95,000 barrels of oil proportionally, which was roughly 8% over the everyday normal rate in the first quarter.

A solid profile will harvest benefits

Chesapeake is in a strong position to boost its margins in this locale through its profitable ownership of firm transportation on the ATEX pipeline. Also, Chesapeake is focused on assessing opportunities to use outsider ethane volumes to satisfy limit commitments.

The ATEX transportation for Chesapeake is moving forward admirably, given the quickly developing territorial creation profile. It plans to put this asset to use in a strategic manner to expand its margins and keep up ethane recuperation adaptability.

Proficient use of capital

Chesapeake deferred some culmination movement from the first quarter to the second quarter because of the severe climate experienced amid the first quarter. It also enhanced capital effectiveness through lower spending in the first quarter. The normal capital cost per well was diminished significantly in the first quarter of 2014 in comparison to the normal well cost in 2013.

Thus, it's spending considerably less capital dollars year-over-year; however, it is still figuring out how to attain or surpass its creation development targets. Chesapeake has chosen to use a piece of the excess cash it created during the quarter for purchasing various rigs and compressors, subject to long haul lease agreements with the plan to diminish future corporate obligations and many-sided quality as a feature of its strategic activity.

The organization's focus on asset dispositions is accepted to be esteem accretive and permit it to further decrease money-related unpredictability and lower general influence.

Conclusion

Chesapeake appears to be all-in-all correct. Its impressive budgetary results illustrate its sound strategies, monetary discipline and profitable and proficient development from caught resources. These moves are prompting improvements across the business.

Moreover, Chesapeake's fundamentals are also truly strong. A PEG degree of 0.75 indicates undervaluation. At last, the organization's earnings are expected to enhance at a CAGR of 17.6% for the following five years. All things considered, Chesapeake continues to remain a solid wager and it should keep enhancing due to its smart strategies and good industry trends.


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK