I’ve been wanting to write about CHK since it reported its Q3 numbers. The stock got hit a bit due to lowered production guidance in Q4. Like most of our investments, when investors focus on the wrong things it creates a buying opportunity. Although CHK never dropped enough for me to add more, I wanted to write about it. My take from the Q3 release was the company is hitting all cylinders and the progress is very good.
CHK did a recent investor presentation. They do a great job of highlighting the key points and success in the transformation of his huge energy company.
- Operating Cash Flow is up 22% and CapEx is down 57%. The increase in cash flow is due the increasing reliance on oil production. This is great news for investors as the company is focusing on the right things, increasing production where the margins are much better.
- Total production is down but oil production is up 23% and gas production is down 10%. This is exactly what we want, oil production to keep increasing and becoming a bigger part of their mix. As for gas, we need the big producers to dramatically cut back. The 10% drop is good but I’m looking for a bigger cut back. With gas prices at the sub-$4, most producers can’t make money. The industry needs to get rational with production before prices will move up.
- Huge cut-back on CapEx where the returns do not make investment worthwhile. Leasehold capex and Other capex has been cut back. I would expect 2014 to be a much better alignment of CapEx against returns on investment. I think investors in CHK will be very happy in 2014.
I except CHK to have a very very good 2014.