Chesapeake Energy Corporation (CHK) | Investment Case

1. Company Snapshot

1.a. Company Description

Chesapeake Energy Corporation, an independent exploration and production company, engages in the acquisition, exploration, and development of properties for the production of oil, natural gas, and natural gas liquids from underground reservoirs in the United States.The company holds interests in natural gas resource plays in the Marcellus Shale in the northern Appalachian Basin in Pennsylvania and the Haynesville/Bossier Shales in northwestern Louisiana; and the liquids-rich resource play in the Eagle Ford Shale in South Texas.As of December 31, 2021, it owned interests in approximately 8,200 gross productive wells, including 6,500 wells with working interest and 1,700 wells with an overriding or royalty interest; and had estimated proved reserves of 661 million barrels of oil equivalent.

The company was founded in 1989 and is headquartered in Oklahoma City, Oklahoma.

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1.b. Last Insights on CHK

Recent positive drivers behind Chesapeake Energy Corporation's performance include the successful merger with Southwestern to form Expand Energy, a $19.5 billion market cap company. This strategic move has expanded Chesapeake's presence in the high-cost Haynesville region and positioned the company to supply natural gas to Midwest and mid-Atlantic utilities via its Marcellus production. Additionally, the company's year-to-date adjusted net income is positive, despite selling prices being lower compared to others in the Marcellus Basin. The merger has also enabled Chesapeake to pay a 2.7% base dividend, providing a stable return to shareholders.

1.c. Company Highlights

Last Price	81.46
Change Percentage	-0.96%
Open	81.85
Previous Close	82.25
Market Cap ( Millions)	10695
Volume	2992655
Year High	93.58
Year Low	69.12
M A 50	76.01
M A 200	81.93

FCF Yield	5.02%
Dividend Yield	2.60%
ROE	4.90%
Debt / Equity	27.95%
Net Debt / EBIDTA	102.36%
Price To Book	1.61
Price Earnings Ratio	33.72
Price To FCF	19.9
Price To sales	2.7
EV / EBITDA	7.86

2. Expand Energy's Q2 Earnings: A Strong Performance

Expand Energy reported a strong financial performance in Q2, with EPS coming in at $1.09, significantly beating analyst estimates of $0.08. The company's revenue growth is expected to be around 21.6% next year, according to analyst estimates. The company's ability to generate cash is evident in its free cash flow yield of 4.81%. The company's net debt reduction is expected to increase to $1 billion in 2025, and it returned $585 million to shareholders in the first half of the year.

Publication Date: Aug -07

                                    📋 Highlights
                                    Increased Synergies:
                                                Annual synergies expected to rise by 50%, generating $500 million in 2025 and $600 million in 2026.
Capital Efficiency:
                                                2025 capital investments reduced by $100 million while maintaining production at 7.1 Bcfe per day.
Net Debt Reduction:
                                                Targeting $1 billion in net debt reduction for 2025 and returning $585 million to shareholders.
AI-Driven Drilling:
                                                Utilizing AI and machine learning to optimize drilling, achieving record-breaking performance.
Hedging Strategy:
                                                Added 169 Bcf of hedges in Q2 with a floor price of $3.75 and ceiling of $4.77.

                                

Operational Highlights

The company is drilling faster and smarter, utilizing AI and machine learning to support record-breaking performance. As Joshua J. Viets mentioned, they've prioritized integrating their data sets and getting all their rigs on a common platform, using AI agents to provide intelligent insights and optimize assets in real-time. The company has reduced its 2025 capital investments by $100 million while maintaining production of 7.1 Bcfe per day.

Synergy Realization and Cost Structure

The company now expects to recognize approximately a 50% increase to annual synergies, realizing $500 million and $600 million in 2025 and 2026, respectively. This translates to $425 million more free cash flow in 2025 and $500 million more in 2026. The company's well costs are around $1,300 a foot, with Haynesville well costs at around $1,200 a foot, and Bossier under $1,500 a foot.

Valuation and Growth Prospects

The company's P/S Ratio is 2.84, and EV/EBITDA is 8.17, indicating a reasonable valuation. The company's ROE is 1.31%, and ROIC is 1.16%. With a dividend yield of 1.7%, the stock offers a relatively attractive return. The company's growth prospects are promising, driven by its diversified portfolio and operational leverage to the largest gas demand center in North America.

Outlook and Hedging Strategy

The company is well-positioned to be responsive to all growing demand elements, including LNG contracts and data center contracts. The company's hedging strategy is disciplined and programmatic, with 169 Bcf of hedges added in Q2, at a weighted average floor price of $3.75 and a ceiling price of $4.77. The company is not bothered by the current volatility and is focused on bringing on production 12 to 18 months from now.

3. NewsRoom

Chesapeake Energy (NASDAQ:CHKEW) Shares Down 2.2% – What’s Next?

Nov -06

Source: defenseworld.net

Y Intercept Hong Kong Ltd Takes $824,000 Position in Schwab 1000 Index ETF $SCHK

Nov -05

Source: defenseworld.net

Short Interest in Schwab 1000 Index ETF (NYSEARCA:SCHK) Rises By 61.2%

Nov -04

Source: defenseworld.net

Expand Energy Reports Legacy Chesapeake Energy Results

Oct -30

Source: seekingalpha.com

Chesapeake And Southwestern Become Expand Energy

Oct -09

Source: seekingalpha.com

Chesapeake Energy and Southwestern Energy Complete Merger and Provide Third Quarter Earnings Conference Call Information, Company Rebranded as Expand Energy

Oct -01

Source: globenewswire.com

Chesapeake Energy Set To Become Largest Natural Gas Producer In US, Says Analyst

Sep -27

Source: benzinga.com

Chesapeake Energy Corporation and Southwestern Energy Company Combination Expected to Close in the First Week of October

Sep -26

Source: prnewswire.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (4.41%)

6. Segments

Oil, Natural Gas and Natural Gas Liquids

Expected Growth: 4.0%

Chesapeake Energy's 4.0% growth in Oil, Natural Gas, and Natural Gas Liquids is driven by increased production in the Eagle Ford and Haynesville shales, improved operational efficiencies, and strategic asset acquisitions. Additionally, higher realized prices for oil and natural gas liquids, coupled with a decline in production costs, contribute to the growth.

Marketing

Expected Growth: 4.83%

Chesapeake Energy Corporation's 4.83% growth in marketing segment is driven by increased natural gas production, strategic hedging, and improved pricing. Additionally, the company's focus on operational efficiency, cost reduction, and disciplined capital allocation have contributed to the growth. Furthermore, Chesapeake's expansion into new markets and its commitment to environmental, social, and governance (ESG) initiatives have also supported the segment's growth.

Oil and Natural Gas Derivatives

Expected Growth: 4.65%

Chesapeake Energy Corporation's 4.65% growth in Oil and Natural Gas Derivatives is driven by increased production volumes, improved operational efficiency, and strategic hedging activities. Additionally, favorable commodity prices, successful exploration and production efforts, and a strong balance sheet have contributed to the segment's growth.

7. Detailed Products

Natural Gas

Chesapeake Energy Corporation is a leading producer of natural gas, with operations focused on the exploration, development, and production of natural gas resources.

Oil

Chesapeake Energy Corporation also produces oil, with a focus on unconventional resource plays in the United States.

Natural Gas Liquids (NGLs)

Chesapeake Energy Corporation produces NGLs, including ethane, propane, and butane, as a byproduct of natural gas production.

Midstream Services

Chesapeake Energy Corporation provides midstream services, including gathering, processing, and transportation of natural gas and NGLs.

8. Chesapeake Energy Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

Chesapeake Energy Corporation operates in the oil and gas industry, which has few substitutes. However, the increasing adoption of renewable energy sources and energy-efficient technologies poses a moderate threat to the company.

Bargaining Power Of Customers

Chesapeake Energy Corporation's customers, primarily utilities and industrial companies, have limited bargaining power due to the company's diversified customer base and lack of dependence on a single customer.

Bargaining Power Of Suppliers

Chesapeake Energy Corporation's suppliers, including drilling and extraction service providers, have moderate bargaining power due to the company's dependence on these services and the limited number of suppliers in the market.

Threat Of New Entrants

The threat of new entrants in the oil and gas industry is low due to the high barriers to entry, including significant capital requirements and regulatory hurdles.

Intensity Of Rivalry

The oil and gas industry is highly competitive, with many established players competing for market share. Chesapeake Energy Corporation faces intense rivalry from companies such as ExxonMobil, Chevron, and ConocoPhillips.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	16.45%
Debt Cost	6.45%
Equity Weight	83.55%
Equity Cost	6.45%
WACC	6.45%
Leverage	19.68%

11. Quality Control: Chesapeake Energy Corporation passed 4 out of 9 key points

Strong Liquidity

Low Debt

Strong Interest Coverage

Healthy Cash Flow

Operating Inefficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Matador Resources

A-Score: 6.0/10

Value: 8.4

Growth: 8.8

Quality: 7.4

Yield: 4.0

Momentum: 3.0

Volatility: 4.7

1-Year Total Return ->

Permian Resources

A-Score: 6.0/10

Value: 6.6

Growth: 7.8

Quality: 6.6

Yield: 6.0

Momentum: 3.5

Volatility: 5.3

1-Year Total Return ->

SM Energy

A-Score: 5.3/10

Value: 9.4

Growth: 5.7

Quality: 6.8

Yield: 5.0

Momentum: 1.5

Volatility: 3.7

1-Year Total Return ->

Marathon Oil

A-Score: 5.3/10

Value: 5.8

Growth: 6.3

Quality: 6.6

Yield: 1.0

Momentum: 5.5

Volatility: 6.3

1-Year Total Return ->

Chesapeake Energy

A-Score: 4.9/10

Value: 5.1

Growth: 1.6

Quality: 6.1

Yield: 8.0

Momentum: 5.0

Volatility: 3.3

1-Year Total Return ->

Crescent Energy

A-Score: 4.7/10

Value: 6.9

Growth: 4.3

Quality: 4.2

Yield: 8.0

Momentum: 1.0

Volatility: 3.7

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

-3.63%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

6.45%

Chesapeake Energy Corporation - US1651677353

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on CHK

1.c. Company Highlights

Lower Growth

Average Yield

Medium Volatility

Earnings Miss

Revenues Miss

Average Quality

Less Volatile

Earnings Beats

Stable Momentum

Expensive

Weak Momentum

Fairly Valued

2. Expand Energy's Q2 Earnings: A Strong Performance

Operational Highlights

Synergy Realization and Cost Structure

Valuation and Growth Prospects

Outlook and Hedging Strategy

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (4.41%)

6. Segments

Oil, Natural Gas and Natural Gas Liquids

Expected Growth: 4.0%

Marketing

Expected Growth: 4.83%

Oil and Natural Gas Derivatives

Expected Growth: 4.65%

7. Detailed Products

Natural Gas

Oil

Natural Gas Liquids (NGLs)

Midstream Services

8. Chesapeake Energy Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: Chesapeake Energy Corporation passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

81.46$

Current Price

81.46$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA