Under Construction: Chesapeake Energy Corporation (CHK)’s Improving Health

Chesapeake Energy Corporation (NYSE:CHK) made the news concerning recent layoffs. The restructuring plan being carried out by new CEO Doug Lawler continues to reduce workforce in an effort to adapt the company to current needs. The firm has dismissed the employees who were its public face at local community forums, chamber of commerce meetings and other events. Specifically, it has fired the corporate development and community relations staff.

With respect to dismissals, management said that “Chesapeake is transitioning key leadership positions and making adjustments to its organization to properly align resources, reduce expenses, and improve its operating and competitive performance. The company’s focus remains on financial discipline and profitable and efficient growth from captured resources. We look forward to realizing Chesapeake Energy Corporation (NYSE:CHK)’s full potential for our shareholders and employees.”

When looking at quarterly reports it is hard to understand Chesapeake Energy Corporation (NYSE:CHK)’s decisions. Production has risen 7% year-over-year, pushed by a 12% increment in oil volumes, being the Eagle Ford and Anadrako Basin assets the most productive. Also, the company has reduced its debt in the last quarter and will benefit from future sale proceeds in the coming months. More, performance has been so good that expected full-year growth rose by 1 point to 3%.

Amid a strong performance, layoffs have to be understood as part of Chesapeake Energy Corporation (NYSE:CHK)’s restructuring. Analysts have noted the aggressive move to divest non-core assets and investments, and management’s desire to allocate capital in a more competitive standing. Additionally, Doug Lawler is set to balance operating cash flows with capital expenditures. Hence, last quarter’s good performance is a step forward a healthier company, and layoffs are the natural collateral damage.

Employee dismissals are not good news, but analysts have been asking Chesapeake Energy Corporation (NYSE:CHK) to tweak its business model. They argued the business model’s vast network of land brokers and a general willingness to offer more favorable lease terms than its competitors led to a frugality in the use of available cash. Hence, analysts speculated that continuing down the same road for long would put the business at risk.

Last, and in line with the restructuring plan set by Doug Lawler, Chesapeake Energy Corporation (NYSE:CHK) will walk away from the state of New York. There, operations were not able to start as government regulation imposed a moratorium in fracking operations in 2008.

Disclosure: Jodor Jalit holds no position in any of the mentioned stocks.

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