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CE

CHESAPEAKE ENERGY CORP (CHK)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 2023 delivered resilient operations amid lower commodity prices: net income $70M ($0.49 diluted EPS), adjusted net income $155M ($1.09 adjusted diluted EPS), adjusted EBITDAX $580M, and net operating cash flow $506M .
  • Production averaged 3,495 mmcfe/d (97% gas), supported by record Marcellus drilling efficiency and Haynesville midstream debottlenecking; elective deferrals and extended curtailments tempered turn‑in‑lines in the Marcellus .
  • Capital returns continued: ~$130M buybacks (1.5M shares, ~$86.16 avg. price) in Q3 and base dividend $0.575 per share for December; cash on hand $713M and undrawn $2.0B revolver at quarter‑end .
  • Strategic LNG positioning advanced via HOA with Vitol (up to 1.0 mtpa indexed to JKM for 15 years starting in 2028) and ongoing “Be LNG Ready” narrative, providing a medium‑term catalyst tied to U.S. LNG build‑out .
  • S&P Global consensus estimates for Q3 2023 were unavailable in our system due to CIQ mapping error; we attempted retrieval but could not access EPS or revenue consensus. Note for future estimate benchmarking [GetEstimates error].

What Went Well and What Went Wrong

What Went Well

  • Record operational efficiency: Marcellus achieved its fastest drilling program ever, averaging 1,367 feet/day, including four of the top 10 longest laterals in company history .
  • Haynesville reliability improved: ~15% q/q reduction in deferred volumes due to pipeline/sales disruptions from debottlenecking and gas flow assurance efforts .
  • Strengthened balance sheet and ongoing capital returns: $506M operating cash flow, $713M cash on hand, $2.0B undrawn credit facility, ~$130M buybacks; management reiterated confidence in delivering lower carbon energy with peer‑leading returns. Quote: “Our team is operating at the highest and safest levels… Our focus is clear — to ‘Be LNG Ready’…” — CEO Nick Dell’Osso .

What Went Wrong

  • Lower commodity prices drove sharp YoY declines in realized prices and revenues: total “revenues and other” fell to $1.512B vs $3.162B in Q3 2022; realized gas price fell to $2.58/MMcf in Q3 2023 vs $4.10/MMcf in Q3 2022 .
  • Elective deferrals and extended curtailments in the Marcellus limited turn‑in‑lines during Q3, impacting near‑term production trajectory despite efficiency gains .
  • Adjusted free cash flow was negative ($35M) in Q3 due to capex cadence and divestiture‑related adjustments tied to Eagle Ford transactions and contributions to investments .

Financial Results

Income Statement and EPS vs Prior Periods

MetricQ3 2022 (oldest)Q2 2023Q3 2023 (newest)
Total Revenues and Other ($USD Billions)$3.162B $1.891B $1.512B
Net Income ($USD Millions)$883M $391M $70M
Diluted EPS ($USD)$6.12 $2.73 $0.49
Adjusted Net Income ($USD Millions, Non‑GAAP)$730M $92M $155M
Adjusted Diluted EPS ($USD, Non‑GAAP)$5.06 $0.64 $1.09
Adjusted EBITDAX ($USD Millions, Non‑GAAP)$1,256M $524M $580M
Net Cash Provided by Operating Activities ($USD Millions)$1,313M $515M $506M

Production and Realized Prices by Region

RegionMetricQ3 2022 (oldest)Q2 2023Q3 2023 (newest)
MarcellusNatural Gas (MMcf/d)1,987 1,830 1,734
MarcellusGas Realized Price ($/Mcf incl. derivatives)$7.25 $1.51 $1.63
HaynesvilleNatural Gas (MMcf/d)1,605 1,590 1,568
HaynesvilleGas Realized Price ($/Mcf incl. derivatives)$7.40 $1.77 $2.15
Eagle FordOil (MBbl/d)50 15 9
Eagle FordOil Realized Price ($/Bbl incl. derivatives)$94.62 $76.39 $82.33
Eagle FordNGL (MBbl/d)16 10 10
Eagle FordNGL Realized Price ($/Bbl)$37.53 $23.67 $25.76
TotalNet Production (MMcfe/d)4,108 3,653 3,495

Capital and Cash Flow KPIs

KPIQ3 2022 (oldest)Q2 2023Q3 2023 (newest)
Drilling & Completion Capex ($USD Millions)$560M $459M $291M
Total Capital Expenditures ($USD Millions)$619M $505M $357M
Free Cash Flow (Non‑GAAP, $USD Millions)$773M $(15)M $83M
Adjusted Free Cash Flow (Non‑GAAP, $USD Millions)$773M $(90)M $(35)M
Cash and Cash Equivalents ($USD Millions)$74M $903M $713M
Net Debt (Non‑GAAP, $USD Millions)N/A$1,047M $1,237M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Wells drilledQ3 202330–40 wells (from Q2 release) Actual Q3: drilled 35 wells N/A (execution vs plan)
Wells placed on productionQ3 202340–50 wells (from Q2 release) Actual Q3: placed 34 wells (incl. 16 in South Texas Rich Eagle Ford) N/A (execution vs plan)
Wells drilledQ4 2023N/A35–45 wells planned New guidance (set for Q4)
Wells placed on productionQ4 2023N/A50–60 wells planned New guidance (set for Q4)
Base dividendQ3/Q4 timing$0.575/share payable Sept 2023 $0.575/share payable Dec 2023 Maintained
Share repurchasesFY 2023~$725M remaining (as of 7/31/23) ~$600M remaining (as of 10/27/23) Continued execution

Note: Management referenced updated 2023 guidance materials on its website but did not include numeric ranges in the 8‑K/press release; Q4 operational guidance for wells was explicitly provided .

Earnings Call Themes & Trends

TopicPrior Mentions (Q1 2023)Prior Mentions (Q2 2023)Current Period (Q3 2023)Trend
LNG readiness / commercial progressHOA with Gunvor (up to 2 mtpa, JKM indexed, target 2027 FOB) HOA with Lake Charles LNG (up to 1 mtpa; purchased by Gunvor at JKM) HOA with Vitol (up to 1 mtpa at JKM, starting 2028 for 15 years) Steady progress with diversified counterparties
Operational efficiencyStrong multi‑basin execution; sustained free cash flow Marcellus fastest wells; Haynesville continuous pumping efficiency +20% vs prior zipper ops Marcellus record drilling speed; Haynesville deferred volume down ~15% q/q Continuing efficiency gains
Capital returnsVariable + base dividend totaling $1.18/share; ongoing buybacks Increased base dividend to $0.575; ~$125M buybacks in Q2 Base dividend $0.575; ~$130M buybacks in Q3; ~$600M remaining auth. Consistent returns; buybacks ongoing
Safety/ESGNet zero by 2035; operational TRIR goals MiQ Grade A & EO100 A‑ recertification; publishing sustainability report Joined OGMP 2.0; ~50% TRIR improvement YTD vs prior year; partnership for geothermal pilot ESG disclosures & certifications expanding
Portfolio optimizationEagle Ford divestitures closed (> $2.8B) Ongoing efficiency, rig/crew reductions aligned to market Elective deferrals/curtailments; flexible plan adjusting to prices Disciplined capital and activity pacing

Management Commentary

  • “Our team is operating at the highest and safest levels, and delivered another strong quarter… Our focus is clear — to ‘Be LNG Ready’… We remain confident in our ability to deliver affordable, reliable, lower carbon energy with peer‑leading returns to shareholders.” — Nick Dell’Osso, President & CEO .
  • Q2 context (for trajectory): “Purposefully built to deliver sustainable performance through commodity cycles… repurchase shares at a compelling valuation and grow our base dividend.” — Nick Dell’Osso .

Q&A Highlights

  • We attempted to read the full Q3 2023 earnings call transcript via the document tool, but encountered a database inconsistency. External transcript sources are available (e.g., MarketScreener, Seeking Alpha), but we could not ingest their full text programmatically to extract verbatim Q&A. References: .
  • Based on the company’s press release disclosures, management emphasized: flexible operating plans amid market conditions (deferrals/curtailments), efficiency gains in Marcellus/Haynesville, and LNG commercialization momentum (Vitol HOA) .

Estimates Context

  • S&P Global consensus estimates (EPS and revenue) for Q3 2023 were unavailable in our system due to CIQ mapping issues. We attempted retrieval via GetEstimates but could not access values. Future benchmarking should incorporate S&P Global consensus when mapping is restored [GetEstimates error].

Key Takeaways for Investors

  • Operational resilience with record drilling efficiency and reduced deferred volumes positions CHK well for 2024 LNG tailwinds despite 2023 price trough; medium‑term LNG offtake HOAs diversify counterparties and provide visibility (Gunvor, Lake Charles, Vitol) .
  • Capital returns remain consistent (base dividend maintained, ongoing buybacks); liquidity strong ($713M cash; $2.0B undrawn) supporting opportunistic repurchases through the commodity cycle .
  • Near‑term production pacing is deliberately flexible (deferrals/curtailments) to optimize value over volume in low‑price environments; watch Q4 execution vs wells guidance (50–60 POPs) .
  • Non‑GAAP metrics show steady operational profitability (Adjusted EBITDAX $580M) even as GAAP revenues and EPS compress vs prior year; monitor cash flow cadence amid capex and divestiture adjustments .
  • ESG momentum (OGMP 2.0; TRIR improvement ~50%) supports investor perception and potential premium for certified gas; expect further disclosures and certifications in 2024 .
  • Trading implication: stock narrative likely driven by LNG commercialization progress, buyback pace, and natural gas macro; any acceleration in U.S. LNG project timelines and basin midstream debottlenecking could be positive catalysts .
  • Estimates angle: once S&P Global consensus mapping is restored, reassess beat/miss dynamics; YoY compression suggests potential downward revisions already priced in—estimate momentum to hinge on macro gas price path and Q4 activity execution [GetEstimates error].

Sources

  • Q3 2023 8‑K and Press Release, Supplemental Tables: .
  • Q2 2023 8‑K and Exhibits: .
  • Q1 2023 8‑K and Exhibits: .
  • External transcript references (not programmatically ingested): .