Few expected Chesapeake Energy (NYSE:CHK) would crush expectations. In the fourth quarter, earnings and revenue were well-above consensuses. The stock’s longtime bearish trend appears to be over. Bears, who have a 26% short float on the stock, should retreat.
The natural gas firm reported the highest margins in 2018, the first since 2014. Shedding its Utica asset and adding the Wildhorse platform, a higher-margin oil growth business, helped overall results. Oil production rose 10% Y/Y. Looking ahead, free cash flow should grow.
Chesapeake Energy aims to cut long-term net debt/EBITDA to the 2 times range. IT already cut $1.8 billion in total net debt. In 2019, the company will invest in its highest-margin oil growth assets. This will improve cash generation and EBITDA/boe. Management is optimistic: it sees EBITDA/boe heading to $14.50, up from $12.81 in 2018.
Q4’s 419 mboe Production
The company produced ~419 mboe in the fourth quarter because of assets in the following regions: Brazos Valley, South Texas, Gulf Coast, Mid-Continent, Marcellus, and Powder River Basin.
To manage price fluctuations, it has hedges totaling 24.2 mmbbl in 2019 and 8.5 mmbbl in 2020 for oil. Chesapeake has 594.9 bcf hedged in natural gas for 2019 and 323.1 bcf next year.
At $8.4 billion of debt, CHK stock is still vulnerable to rate hikes but only $380 million of debt is due this year. As energy prices rise, CHK’s cash flow will go up and so will its share price.
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