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More Bad News In Chesapeake, Continental Fourth Quarter Earnings, But It Could Be Worse

A building on the Chesapeake Energy Corporation campus.
Brent Fuchs
/
The Journal Record

Last week major Oklahoma energy players Devon and Williams Companies unveiled their latest earnings reports, showing huge fourth-quarter losses. The news wasn’t any better this week for Oklahoma City oil and gas giants Chesapeake Energy and Continental Resources also posted significant losses.

“Continental lost $353 million in 2015, and their revenue was down 44 percent. Chesapeake reported a loss of nearly $2.2 billion just in the fourth quarter,” said The Journal Record’s managing editor Adam Brooks. “They had a profit a year ago in that time period. But their stock is trading in the $2 range this week. It was near $20 a year ago.”

Despite the 18-month energy downturn, both companies beat Wall Street expectations. Brooks say Continental had more revenue than predicted, but its earnings were less than expected.

“Their CEO and founder Harold Hamm praised his employees for adjusting to the situation and not adding debt last year. The company's still committed to no layoffs,” Brooks said. “Chesapeake didn't lose quite as much as Wall Street thought they might.”

Chesapeake also announced a plan to sell $1 billion in assets in 2016. During a conference call with investors this week, CEO Doug Lawler said the company will likely have to do that incrementally, rather than all at once.

“The interest level in larger $1 billion-plus sized asset sales is very low in the current market,” Lawler said. “We expect to continue to make progress on several smaller asset divestitures, which when taken together can add up to meaningful amounts until we can evaluate the possibility of divesting a larger asset.”

Brooks says it’s part of Lawler’s strategy of continuing to reduce the company’s long-term debt even since he took for over from founder Aubrey McClendon in 2013. But that’s also included two rounds of layoffs affecting hundreds of employees, and spinning off the company’s oilfield services division. Earlier this month the company had to fight off bankruptcy rumors that hurt its stock price. University of Oklahoma economist Chitru Fernando told The Journal Record’s Sarah Terry-Cobo those rumors were exaggerated:

However, the combination of low oil and gas prices and high debt makes the company vulnerable, he said. Chesapeake reduced its debt by $2.2 billion in the last year, primarily by exchanging secured second-lien debt and reducing interest expenses. The company still has $9.5 billion in debt as of February 23, according information it provided. Low commodity prices reduced the company’s equity to about $1 billion, Fernando said. “That is extremely high leverage; that makes them extremely vulnerable,” he said. “That means they might be unable to pay that debt. That could lead to bankruptcy or a buyout, for whoever wants to exploit low prices.”

The Business Intelligence Report is a collaborative news project between KGOU and The Journal Record.

As a community-supported news organization, KGOU relies on contributions from readers and listeners to fulfill its mission of public service to Oklahoma and beyond. Donate online, or by contacting our Membership department.

The Journal Record is a multi-faceted media company specializing in business, legislative and legal news. Print and online content is available via subscription.

Brian Hardzinski is from Flower Mound, Texas and a graduate of the University of Oklahoma. He began his career at KGOU as a student intern, joining KGOU full time in 2009 as Operations and Public Service Announcement Director. He began regularly hosting Morning Edition in 2014, and became the station's first Digital News Editor in 2015-16. Brian’s work at KGOU has been honored by Public Radio News Directors Incorporated (PRNDI), the Oklahoma Association of Broadcasters, the Oklahoma Associated Press Broadcasters, and local and regional chapters of the Society of Professional Journalists. Brian enjoys competing in triathlons, distance running, playing tennis, and entertaining his rambunctious Boston Terrier, Bucky.
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