Chesapeake May Have Learned Its Lesson
The last month or so have been good for the major stock averages, helped along by the promising elixir of eventual Quantitative Easing. Yet it's easy to fall into the same quicksand that Chesapeake Energy(CHK) did, led by their risk-taking, swash-buckling CEO Aubrey McClendon.
CHK is a big company and is the second-largest producer of natural gas, behind the Jolly Green Giant of energy companies, Exxon Mobil(XOM) .
Once upon a time Chesapeake had a market cap of around $18 billion, and their CEO, who owned a lot of CHK stock, spent an enormous amount of the company's money drilling for more oil after the price of natural gas tanked.
The Wall Street Journal reported in an Aug. 6 article that Chesapeake's "budget for leasing and drilling is roughly $6 billion greater than its projected cash from operations this year." This may help explain why their current market cap has dropped to $12.39 billion as of Thursday.
For the 2012 second quarter, Chesapeake reported net income to common stockholders of $929 million ($1.29 per fully diluted common share), Ebitda of $2.385 billion (defined as net income before income taxes, interest expense, and depreciation, depletion and amortization) and operating cash flow of $895 million (defined as cash flow from operating activities before changes in assets and liabilities) on revenue of $3.389 billion and production of 347 billion cubic feet of natural gas equivalent.
The rest of the earnings story for the second quarter is worth perusing on the company's Web site. The bottom line is that the adjusted earnings-per-share for the second quarter 2012 vs. the first quarter fell by 66%. Not a pretty picture indeed!
Here's a chart that helps tell the story. You might see some good news as the price seems to have bottomed for now and earnings per share are turning skyward.