Back in 2013, oil and gas company Chesapeake Energy Corporation (CHK Stock Report) had been down in the dumps. It had been looking for a turnaround and at the time, its board members took an inspired decision. Chesapeake appointed former Anadarko Petroleum (APC Stock Report) executive Doug Lawler as the new Chief Executive Officer. That’s one way to jump-start a turnaround for this penny stock I suppose.
Since then, the company has managed to engineer a remarkable turnaround, fundamentally. The stock price, unfortunately, has come under extreme pressure in recent months. Now that this is a penny stock, what comes next? The recent drop was due, in part, to the immense uncertainty in the global oil and gas industry. In a conference call, Lawler spoke about the accomplishments of the company during the past six years. Now, analysts believe that the company is currently headed in the right direction.
Operational Details
In 2013, the energy penny stock balance sheet was in a precarious position. Chesapeake had liabilities worth $15.5 billion on its balance sheet at the time and the quantum of off-balance sheet liabilities totaled $23 billion. The liabilities had accumulated due to a network of financial arrangements that the company had entered into in order to fund their growth. However, those liabilities have come down significantly over the past six years.
Liabilities on the balance sheet came down to $11.2 billion 2018, while the off the book liabilities settled at $5.9 billion. Much of the improvement was fuelled by sales of assets. On the other hand, the company’s drilling activities have also improved significantly and that has also helped in boosting the margins.
Production Analysis
Chesapeake has grown its oil output significantly in the recent quarters. This followed the acquisition of WildHorse Resource Development. That could bode for the company’s quest to turn the business around. The company projects oil production will make around 30% of its output in 2020, up from 19% in 2018.
On the other hand, the profits per barrel are expected to be 50% in 2022, up from 35% in 2018. Chesapeake also projects savings to the tune of $200 million to $280 million by next year. The company seeks to become a cash flow positive company as soon as possible and complete its remarkable turnaround.
Analysts believe that although a lot of work is still to be done. Chesapeake’s performance over recent years makes it an interesting oil stock and one which investors could keep their eye on.
