Losses in the 3Q reported by Chesapeake Energy—spending cuts coming in 2020

Hit with a net loss of $61 million in the third quarter 2019, Oklahoma City’s Chesapeake Energy is preparing for spending cuts in its 2020 budget.

The company also warned about its ability to continue as a going concern as its debt is close to $10 billion which is about four times the firm’s market value. Chesapeake, once the second-largest U.S. natural gas producer saw shares fall 13.8% to $1.34 in early trading after the company reported a bigger-than-expected loss.

With the shale oil boom also producing more gas production, prices are close to a 25-year low, prompting Chesapeake to expand its oil-production efforts over the past year.

Adjusted net loss attributable to the company was $188 million, or 11 cents per share, in the third quarter ended Sept. 30 from a loss of $8 million, or 1 cent per share, a year earlier.

Analysts on average had expected the company to report a loss of 10 cents per share, according to IBES data from Refinitiv.

The company also plans to cut its 2020 production costs as well as general and administrative expenses by about 10% while expecting flat oil production year over year.

The company said its net loss available to stockholders was $101 million or 6 cents a diluted share. Adjusting for items typically excluded by securities analysts, the 2019 third quarter adjusted net loss was $188 million.

In its financial results announcement, the company says it is ” reducing 2020 Capital Expenditures by 30 percent.” The Oklahoma-based firm expects capital expenses to range from $1.3 billion to $1.6 billion for 2020, well below $2.11 billion to $2.31 billion set aside for 2019.

It also expects to reduce 2020 production and general and administrative expenses by ten percent. But Chesapeake says it will maintain 2019 production and capital expenditure guidance.

The firm said it “anticipates flat production year over year” with 10 to 13 rigs in operation. However, its fourth quarter oil production is “projected to increase approximately 10% over 2019 third quarter levels.”

Total production fell nearly 11% to 478,000 barrels of oil equivalent per day (boe/d) from a year earlier and missed analysts’ expectations of 490,664 boe/d.

One bright spot in the category of production was the company’s Brazos Valley operations which set a net averaged oil production record of nearly 40,000 barrels of oil a day for the month of October 2019.

The company also reported its first Niobrara well drilled and completed since 2014 produced more than 100,000 barrels of oil in its first 87 days.

Despite the net loss reported by the company, President and CEO Doug Lawler was still pleased with Chesapeake’s execution for the quarter.

“We expect our oil production to grow approximately 10% in the fourth quarter, compared to the third quarter, and we remain on track to meet our 2019 total production and capital expenditure guidance. Our capital efficiency improvements, expected reduction in cash costs and anticipated capital plan position us to target free cash flow in 2020.”

However, the company’s average daily production for the 2019 third quarter was 478,000 boe a day which was a 3 percent adjusted growth year over year. Oil production represented approximately 24% of the company’s 2019 third quarter aggregate production, compared to 17% in the 2018 third quarter.
The company reported its operating margin remained flat in the 2019 third quarter compared to a year earlier due to an increase in oil production mix and a drop in cash costs.
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