10-QPeriod: Q1 FY2017

EXPAND ENERGY Corp Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 4, 2017For Securities:EXEEXEELEXEEWEXEEZ

Summary

Chesapeake Energy Corporation (EXE) reported improved financial results for the first quarter of 2017 compared to the same period in 2016, primarily driven by a significant increase in commodity prices. Total revenues rose to $2.753 billion from $1.953 billion, and the company reported a net income of $141 million, a substantial turnaround from a net loss of $1.068 billion in the prior year's quarter. This improvement was largely due to higher realized prices for oil, natural gas, and natural gas liquids (NGLs), alongside a significant reduction in operating expenses, particularly the absence of a large impairment charge seen in Q1 2016. Operationally, the company reduced its debt by $908 million during the quarter. While production volumes decreased year-over-year, this was partly attributed to asset sales and reduced drilling activity in 2016. The company has increased its capital expenditure guidance for 2017, indicating a strategic shift towards capturing high rate-of-return opportunities. Despite the improved performance, the company's liquidity remains a key focus, with ongoing efforts to manage debt and operational flexibility.

Financial Highlights

41 data points
Beta

Revenue

$2.75B

Net Income

$140.00M

5.1% Net Margin

EPS (Diluted)

$0.08

Total Assets

$11.70B

Cash & Equivalents

$249.00M

Free Cash Flow

$99.00M

Financial Statements
Beta
Revenue$2.75B
Operating Expenses$2.51B
Operating Income$241.00M
Interest Expense$95.00M
Net Income$140.00M
EPS (Basic)$0.08
EPS (Diluted)$0.08
Shares Outstanding (Basic)906.00M
Shares Outstanding (Diluted)907.00M

Key Highlights

  • 1Net income turned positive at $141 million in Q1 2017, a significant improvement from a net loss of $1.068 billion in Q1 2016.
  • 2Total revenues increased by approximately 41% to $2.753 billion, driven by higher commodity prices for oil, natural gas, and NGLs.
  • 3The company successfully retired $908 million in principal amount of its outstanding senior and contingent convertible notes.
  • 4Capital expenditures are planned to increase in 2017 ($2.1-$2.5 billion) compared to 2016 ($1.7 billion) to capitalize on improved operational efficiencies and well performance.
  • 5Production volumes decreased year-over-year, with oil, natural gas, and NGL production down 16%, 24%, and 25% respectively, partly due to asset sales.
  • 6Despite improved revenues, the company ended the quarter with a net working capital deficit of $1.428 billion.
  • 7The company reinstated preferred stock dividend payments in Q1 2017 after suspending them in 2016.

Frequently Asked Questions

The primary driver was a substantial increase in the average realized prices for oil, natural gas, and NGLs. Additionally, operating expenses decreased, notably due to the absence of a large impairment charge of $997 million recorded in Q1 2016 for oil and natural gas properties. This combination led to a turnaround from a net loss to a net profit.

Chesapeake Energy actively managed its debt by retiring $908 million in principal amount of its outstanding senior notes and contingent convertible notes during the first quarter of 2017. This was achieved through open market purchases, tender offers, and scheduled maturities.

The company projects capital expenditures for 2017 to be between $2.1 billion and $2.5 billion, an increase from $1.7 billion in 2016. This increase is driven by a strategy to capture high rate-of-return opportunities resulting from improved capital and operating efficiencies, better well performance, lower drilling and completion costs, and reduced operating expenditures.

The company's liquidity is primarily dependent on the volatile prices of oil, natural gas, and NGLs. Other risks include counterparty credit risk for receivables, access to capital markets, regulatory risks, and the ability to meet financial covenants in its financing agreements. The company has a net working capital deficit and relies on its revolving credit facility and cash flows to meet obligations.