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CE

CHESAPEAKE ENERGY CORP (CHK)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 was operationally disciplined amid weak gas pricing: Chesapeake reported total revenues of $0.51B and GAAP diluted EPS of -$1.73; on a non-GAAP basis, adjusted net income was $1M with adjusted diluted EPS of $0.01 .
  • Management lowered 2024 capital guidance by $50M to $1.2–$1.3B and cut production expense guidance by $0.02 to $0.21–$0.26/mcf, citing durable efficiency gains and market deflation; base dividend maintained at $0.575/share .
  • Strategy continues to prioritize deferring completions/TILs to build short-cycle productive capacity (29 DUCs and 46 deferred TILs at quarter end), positioning the company for demand recovery and the pending Southwestern merger .
  • S&P Global consensus estimates for Q2 2024 were unavailable, so beat/miss vs Street could not be assessed; key stock catalysts were the capex/opex cuts, capacity build, and merger synergy narrative .

What Went Well and What Went Wrong

What Went Well

  • Operational efficiency improved: longer laterals, optimized designs, and enhanced saltwater disposal lowered breakevens; management reduced capex and production expense guidance, expecting durability through cycles .
  • Liquidity and capital return: $1,019M cash on hand; base dividend of $0.575/share declared for September (14th straight quarter), cumulative $3.5B returned to shareholders since 2021 .
  • Clear execution strategy: building short-cycle capacity via deferrals (29 DUCs, 46 deferred TILs) to accelerate when demand recovers; “We remain focused on operational improvements and enhancing capital efficiency…positioning us to lower our breakeven costs” — Nick Dell’Osso .

What Went Wrong

  • Commodity-driven financial compression: total revenues fell to $0.51B from $1.08B in Q1; GAAP net loss of $227M, driven partly by unrealized derivative losses of $262M in Q2 .
  • Margin pressure: adjusted EBITDAX declined to $358M from $508M in Q1 as volumes and realized pricing weakened; adjusted free cash flow was -$119M in Q2 .
  • Production curtailed: net production decreased to ~2.75 Bcfe/d from 3.20 Bcfe/d in Q1 as the company deferred completions and TILs to prioritize economics over volumes .

Financial Results

Quarterly comparison vs prior periods and estimates

MetricQ4 2023Q1 2024Q2 2024Consensus (S&P Global)
Total Revenues ($USD Billions)$1.95 $1.08 $0.51 N/A – unavailable
GAAP Diluted EPS ($USD)$4.02 $0.18 -$1.73 N/A – unavailable
Adjusted Diluted EPS ($USD)$1.31 $0.56 $0.01 N/A – unavailable
GAAP Net Income ($USD Millions)$569 $26 -$227 N/A – unavailable
Adjusted Net Income ($USD Millions)$185 $80 $1 N/A – unavailable
Adjusted EBITDAX ($USD Millions)$635 $508 $358 N/A – unavailable

Note: S&P Global consensus estimates were unavailable for CHK, so beat/miss vs Street cannot be determined.

Segment and price breakdown

Basin/MetricQ2 2023Q2 2024
Marcellus – Gas (MMcf/d)1,830 1,554
Marcellus – Realized Gas Price ($/Mcf, incl. realized derivatives)1.51 1.35
Haynesville – Gas (MMcf/d)1,590 1,191
Haynesville – Realized Gas Price ($/Mcf, incl. realized derivatives)1.77 1.70
Company Total – Production (MMcfe/d)3,653 2,745
Company Total – Realized Price ($/Mcfe, incl. realized derivatives)2.67 2.51

KPIs

KPIQ4 2023Q1 2024Q2 2024
Net Production (MMcfe/d)3,427 3,198 2,745
Rigs (avg during quarter)9 9 8
Wells Drilled45 28 30
Wells Placed on Production52 29 4
DUCs (end of period)N/A24 29
Deferred TILs (end of period)N/A22 46
Adjusted Free Cash Flow ($USD Millions)-$39 $112 -$119
Net Debt ($USD Millions)$871 $771 $931
Base Dividend per Share ($USD)$0.575 (Mar) $0.575 (Jun) $0.575 (Sep)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Capital Expenditures ($USD Billions)FY 2024$1.25–$1.35 $1.20–$1.30 Lowered $50M
Production Expense ($/mcf)FY 2024$0.23–$0.28 (implied) $0.21–$0.26 Lowered $0.02
Wells (drilled / placed on production)FY 202495–115 drilled; 30–40 placed 95–115 drilled; 30–40 placed Maintained
Base Dividend ($/share)Q3 2024 payoutN/A$0.575 (Sept 5, 2024) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23 and Q1’24)Current Period (Q2’24)Trend
Cost reductions & capital efficiencyPlan to defer activity; focus on discipline, efficiency, FCF; 2024 capex lowered to $1.25–$1.35B 50% improvement in Marcellus drilling since 2022; ~20% well cost reductions; continued breakeven improvements Improving
Market flexibility via deferralsDeferring TILs; building capacity to activate when demand requires ~29 DUCs and 46 deferred TILs; up to ~1 Bcf/d productive capacity discussed on call Building capacity
Merger with SouthwesternAnnounced; S-4 filed; synergy narrative strengthened “Preparing for pending combination” and synergy capture emphasized on call Integration focus
Water disposal & opexESG/operational updates; enhanced systems ~25% decrease in saltwater disposal cost per barrel since Q3’23; ~30k bpd disposal capacity; ~60 miles gathering Lower opex
LNG marketing strategyTwo SPAs (Delfin LNG → Gunvor; JKM-linked) Continued engagement; optionality positioned for export-linked demand Strategic positioning
Demand drivers (data centers/power)Macro demand commentaryCall referenced rising electricity demand and data-center impacts; behind-the-meter discussions Positive tailwind narrative

Management Commentary

  • “We remain focused on operational improvements and enhancing capital efficiency…positioning us to lower our breakeven costs while we build productive capacity to more efficiently reach consumers when demand recovers.” — Nick Dell’Osso, President & CEO .
  • “We are pleased with our quarterly results…our strategy designed to provide the greatest level of flexibility to manage unpredictable market conditions is working.” — Prepared remarks on call .
  • Conference call info and investor presentation availability noted (9:00 a.m. EDT, July 30, 2024) .

Q&A Highlights

  • Capital efficiency and well performance: Discussion of Marcellus drilling improvements since 2022 and continuing reductions in well costs; Upper vs Lower Marcellus performance and economic improvements through longer laterals/hybrid designs .
  • Water disposal investments: ~30k bpd capacity across four sites; ~60 miles of gathering systems; ~$15–$20M annual investment cadence; utilization ~65–70%; synergy potential with Southwestern .
  • Market demand and deferral strategy: Clarifications on deferral activation criteria and the ability to bring up to ~1 Bcf/d capacity online as market tightens .
  • Merger synergies and timing: Confidence in synergy capture and integration planning ahead of anticipated close; no change to near-term capital discipline .

Estimates Context

  • S&P Global consensus estimates for Q2 2024 EPS and revenue were unavailable due to CIQ mapping issues for CHK; as a result, we cannot assess beat/miss vs Street for this quarter.
  • We recommend rechecking when S&P Global mapping is updated to anchor comparisons on CIQ consensus per policy.

Key Takeaways for Investors

  • Near-term execution remains conservative: deferrals and lower activity levels are preserving value and building capacity for a potential demand-driven ramp when pricing improves .
  • Structural cost progress: capex and opex guidance cuts underscore improved breakevens; these gains appear durable and should expand margins in an upcycle .
  • Non-GAAP optics matter: Q2 adjusted EPS ($0.01) diverged sharply from GAAP (-$1.73) due to unrealized derivative losses; focus on adjusted EBITDAX and FCF trajectory into a potential recovery .
  • Balance sheet flexibility: Net debt of ~$931M against ~$1,019M cash offers resilience; stable base dividend signals confidence in cash generation through cycles .
  • Merger synergy optionality: Pending Southwestern combination could enhance utilization of water systems, improve capital efficiency, and increase scale for LNG-linked demand .
  • Catalysts ahead: watch for natural gas pricing inflection, progress on LNG contracts, merger closing updates, and activation of deferred capacity; these are likely stock drivers .