Chesapeake Energy (CHK) posted red ink in the fourth quarter and announced plans to cut spending in half amid the ongoing oil swoon.
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Chesapeake, the second-largest producer of natural gas behind Exxon Mobil (XOM), reported a $2.23 billion loss, or $3.36 a share, versus a year-ago profit of $586 million. Stripping out one-time charges and a smaller number of outstanding shares, Chesapeake matched Wall Street estimates with an adjusted loss of 16 cents a share.
Revenue tumbled 53% to $2.65 billion. Analysts were anticipating a steeper drop to $2.63 billion.
Shares rallied as much as 25% to $2.74. Through Tuesday, Chesapeake’s stock had declined 43.7% since the start of 2016.
Like other energy producers, Chesapeake has responded to cheap oil prices by shutting down some drilling projects. Chesapeake wrote down $2.83 billion worth of oil and natural gas properties in the fourth quarter, and its average operated rig count dropped to 14 from 67 a year ago. Oil and natural gas production in 2016 is expected to decline as much as 5%, excluding asset sales.
Chesapeake provided guidance for total capital expenditures of $1.3 billion to $1.8 billion this year, representing a 57% reduction year-over-year based on the midpoint of the projected range.
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“In light of the challenging commodity price environment, our focus for 2016 is to improve our liquidity, further reduce our cost structure and address our near-term debt maturities to strengthen our balance sheet,” CEO Dough Lawler said in a statement.
Chesapeake has sold off assets and cut jobs following years of debt-fueled spending on land rights. With depressed commodity prices putting more pressure on its balance sheet, the Oklahoma City-based firm recently halted its preferred dividends to help conserve cash.
S&P Global Market Intelligence wrote in a research note last week that Chesapeake has made material adjustments to “help weather the current environment,” although “longer-term solvency issues continue to present a closing gap of recovery in the troubled commodity price backdrop.”
By the end of 2015, Chesapeake had $9.7 billion in debt, much higher than the company’s market value of around $2 billion. Chesapeake plans to continue purchasing its debt while it’s trading at a discount.
Earlier in February, Chesapeake assured investors that it has no plans to seek bankruptcy protection.
During a conference call with analysts, CEO Doug Lawler said there are no concerns about Chesapeake’s ability to ramp-up drilling activity in 2017 if oil prices begin to recover.
U.S. crude was trading 2.6% lower at $31.03 a barrel on Wednesday, while natural gas came close to setting a new 16-year low. Natural gas for March delivery slipped as low as $1.76 per million British thermal units.
Saudi Arabia’s oil minister said the country is ready to let oil prices fall to the $20 mark after a potential agreement between OPEC and non-member producers was derailed. Meanwhile, U.S. data showed a larger-than-expected increase in domestic oil stockpiles.