Chesapeake Energy (CHK) Tanks on Reduced Guidance Despite Earnings Beat

Michael Teague  |

Chesapeake Energy ($CHK) is the 13th largest publicly traded independent oil and gas company, but also the second-largest producer of natural gas in the United States.

While the release of its earnings report for the recently-ended third quarter showed the company matching expectations for profit and beating them for revenue, the stock was trading substantially lower in mid-session as a result of a much reduced outlook for rig completion and operation for the fourth quarter.

Q3 was indeed a strong one for Chesapeake, the kind of quarter that would usually send a stock upward. Net income was at $156 million, or $0.24 per share on revenue of $4.87 billion, a huge year-over-year improvement on Q3 2012, when the company lost $2.06 billion, or $3.19 per share on revenue of $2.97 billion.

Last year’s Q3 saw Chesapeake taking over $3 billion in writedowns on both oil and natgas assets, items which continue to plague the company’s financial performance. Excluding items, earnings would have been $0.43 per share, in line with expectations, while revenue far surpassed the average forecast of $3.8 billion.

Operationally speaking, the recently-ended period couldn’t have been better either. Oil production was up about 23 percent year-over-year to 120,000 barrels per day. Natural gas output was lower, but was supplemented by the increase in oil, particularly from assets in the Eagle Ford Shale in Texas, as well as higher natural gas prices overall.

The market lost heart however when it came to guidance for the remainder of 2014. Chesapeake said it would complete and operate less wells overall during the fourth quarter of 2013, which while reducing costs will also reduce output at a time when oil prices look to remain lower, and the company plans to sell off even more of its assets.

Shares were trading 7.25 percent lower heading to the closing bell, to $26.10.

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