Why Chesapeake's energy stock is on fire today – The Motley Fool

What happened

Actions of Energy Chesapeake (NYSE: CHK) were in rally mode Wednesday, recording an increase of more than 12% at 13 hours. IS. The fourth quarter report and outlook for 2019 has been propelled by the stock of oil and gas producers.

So what

As analysts approached the quarter, analysts expected Chesapeake Energy's earnings to rise from $ 0.19 per share in the third quarter to $ 0.18 per share in the fourth quarter, as a result of the drop in oil prices. Unexpectedly, the company reported exceptionally strong results, with adjusted earnings of $ 0.21 per share, while production was down 7% from its current level, while expenses rose by 15%. The company has offset these problems by increasing its higher margin oil production.

Chesapeake also presented an optimistic outlook for 2019. The company has announced plans to spend $ 2.3 billion to $ 2.5 billion on capital, which is about the same as the $ 2.366 billion spent on capital. ;last year. That's enough money to bring the company's oil production to an average of 116,000 to 122,000 barrels a day, an impressive 32% increase over 2018, driven by its acquisition of WildHorse Resource Development and its position in the Powder River Basin.

Now what

Chesapeake Energy estimates that it has reached an important inflection point. The combination of the sale of its Utica shale assets and the acquisition of Wildhorse has reduced its debt while turning it into a growth-oriented oil company. This increase in oil production should allow the company to generate more liquidity, which would further improve its balance sheet, provided, of course, that crude oil prices do not collapse anymore as was the case at the time. end of last year. While the transformation of Chesapeake Energy makes it an interesting oil stock to watch, its finances have not yet become solid again. That's why investors should be cautious before taking the Chesapeake train because the company has often burned its shareholders in the past.

Matthew DiLallo has no position in the mentioned actions. The Motley Fool has no position in any of the actions mentioned. Motley Fool has a disclosure policy.