Chesapeake $35 Stock Value Supported by Production Growth
Chesapeake (NYSE:CHK) posted a 9 percent increase in production levels over the previous quarter in its Q3 earnings. The company continues its investment in the development of new wells and technologies to support the consumption of Natural Gas. Chesapeake, the second largest U.S. natural gas producer, primarily competes with Exxon Mobil (NYSE:XOM), ConocoPhillips (NYSE:COP), Anadarko (NYSE:APC), BP (NYSE:BP) and Chevron (NYSE:CVX).
Our $35 price estimate for Chesapeake Energy’s stock represents a premium of about 30% over the market price.
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Drilling costs to increase
Chesapeake may face an increase in drilling and production costs going forward as service costs continue to rise in the oil industry. This trend may lead to a correction in the company’s profit margins. The company projects its 2012 drilling and completion costs at $6.8 billion, compared to an earlier estimate of $6.2 billion. Chesapeake plans to offset these rising costs through improved operations in its oilfield services arm. [1]
On course to increase production
With technological advances and the increase in the selling price of fuel, shale gas and oil mining has become very profitable and the company is looking to take advantage of this opportunity by developing its resources. Chesapeake estimates that its 2013 natural gas production will be 1040 billion cubic feet and liquids production will be 74 billion barrels. The rising production of natural gas may offset the increase in the selling price of the fuel, as production costs are higher than for traditional oil wells, resulting in some margin compression for the company. The company also announced that it is close to selling a significant portion of its land in the Utica gas shale deposit regions for $3.4 billion in two separate deals. The details of the prospective buyers have yet to be disclosed.
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Notes:- Chesapeake Energy Corporation Reports Financial and Operational Results for the 2011 Third Quarter, Company Press Release, Nov 2011 [↩]