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Five Things to Look for From Chesapeake Energy Corporation (CHK) This Earnings Season

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Chesapeake Energy Corporation (NYSE:CHK) reports its quarterly results on Thursday. I like to prepare ahead of the announcement so the numbers don’t bias my perception of the company’s results. Here are five things I’m looking for in Chesapeake Energy Corporation (NYSE:CHK)’s earnings this week.

What to look for this quarter

Chesapeake Utilities Corporation (NYSE:CPK)(1) A new head honcho

CEO Robert Lawler will make his first appearance on the company’s conference call. Previously Lawler worked for Anadarko Petroleum as Senior Vice President of the company’s international and offshore operations. Now he faces the tough task of righting Chesapeake Energy Corporation (NYSE:CHK)’s financial ship and restoring investor confidence.

We will likely hear additional details on his turnaround strategy in the call. This program will likely be made of four parts: 1) additional asset sales to pare down debt, 2) increased focused on higher priced liquid production, 3) improved corporate governance, and 4) renewed cost cutting efforts.

(2) More asset sales coming

During the heyday of natural gas, former CEO Aubrey McClendon borrowed heavily to fund an aggressive expansion program. If there was even a rumor of gas in an area, Chesapeake Energy Corporation (NYSE:CHK) had its checkbook open and was willing to outbid any rival. But such moves left the company in dire financial straits with $12 billion in debt and a $3.5 billion funding gap by the start of 2013.

To shore up its balance sheet, Chesapeake Energy Corporation (NYSE:CHK) has announced its intentions to use joint ventures, asset sales, and other transactions to generate $4 billion to $7 billion in capital. By mid-year the company has made progress towards this goal though not always on terms the Street would like.

Earlier this year, Sinopec purchase a 50% share of Chesapeake Energy Corporation (NYSE:CHK)’s Mississippi Lime assets for $1.02 billion. But it’s clear investors were none too pleased by the transaction as many felt the deal undervalued Chesapeake’s properties. At roughly $2,400/acre, the deal was well below prior transactions in the region and it’s clear that the company lacks power at the negotiating table.

For Sinopec the joint venture gives the company access to about 850,000 net acres in northern Oklahoma. With its big cash balance, the company has positioned itself as a liquidity provider for troubled companies. And it appears the strategy is paying off. Sinopec has been posting impressive returns for investors while it cost-effectively completes its North American expansion.

Chesapeake is closing in on its $4 billion target in asset sales. With management expressing the intentions to do more deals in upcoming quarters, look for additional details in the call.

Long term trends

(3) Shifting production mix

Chesapeake’s turnaround hinges on its ability to slash its capital spending program and refocus on projects that can quickly generate cash flow. The company is making progress on this front. Management projects 2013 CapEx spending to fall 43% to $7.6 billion with priority given to drilling and completion projects.

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