Will Chesapeake Energy Corporation (CHK) Keep Rallying?

Oil remains stable

Despite the high volatility in the price of oil during the first few months of 2013, its average quarterly rate was $94.40 bbl, which is almost the same annual average price as 2012 but 8.3% lower than the rate recorded in the first quarter of 2012.

For Anadarko, revenue from oil accounted for nearly 65% of its total revenue in 2012. So the price might have an adverse effect on most of the company’s revenue compared to the same quarter in 2012.

For Devon or Chesapeake Energy Corporation (NYSE:CHK), the share of oil sales out of total revenue in 2012 was around 30%. Therefore, the drop in oil prices is also likely to adversely affect Chesapeake’s revenue. But based on the company’s outlook, its oil production is expected to rise by roughly 18% (y-o-y) this year, so the drop in oil prices will be offset by the rise in production.

Based on the above, I think that these companies, including Chesapeake, will have a better first quarter of 2013 compared with the year-ago quarter. Moreover, if the price of natural gas remains above $4/mcf and the price of oil remains over $90 bbl, Chesapeake will have a much better year than it had in 2012.

But the company’s exposure to natural gas will keep its risk high. Finally, the price of natural gas is still lower than it was in previous years (before 2012), which will keep Chesapeake cutting its natural-gas production.

The article Will This Gas Producer Continue to Rally? originally appeared on Fool.com.

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