Lawler’s Chesapeake Energy Is a Lean, Mean, Cost-Cutting Machine
Chesapeake Energy Corp. (NYSE:CHK) has had a pretty wild year. The stock is up more than 37 percent since January 28, the day that infamous co-founder and CEO Aubrey McClendon announced he would step down.
The market reaction to his departure has largely been positive. Although he was responsible for much of the innovation and growth at the company — under his guidance, the company became the second-leading producer of natural gas in the U.S. — McClendon was also mired in a damaging financial scandal, and many investors seem glad to wipe their hands of the complication.
Current CEO Doug Lawler became the boss effective June 17, and he has spent a lot of time over the past several months aggressively cutting costs. Chesapeake has sold nearly $4 billion in assets this year as it seeks to streamline operations that became outsized under McClendon, and the company has reduced its workforce by nearly 10 percent.
Sources told Reuters that the company has cut about 1,200 jobs so far, including company chaplains that were hired by McClendon.
The cost-cutting has helped rekindle investor interest in the company, and better-than-expected second-quarter financial results helped buoy the firm’s value following the transition. Second-quarter net revenues increased 37.95 percent on the year to $4.68 billion, beating the average analyst estimate of $3.21 billion. Adjusted earnings increased 750 percent on the year to 51 cents per share, beating the average analyst estimate of 41 cents per share.
New management is focused on reducing costs and capitalizing on the company’s many attractive properties for unconventional gas and oil plays, many of which were acquired thanks to McClendon’s willingness to pay high premiums for prime real estate.
That willingness, though, saddled the company with $12 billion in debt, and Lawler is focused on reducing it. The company recently announced that it is selling portions of its Haynesville and Eagle Ford shale fields for a total selling price of $1 billion.
While the company will lose some production capabilities from the sale, it will not have to take on additional debt to run its operations for the rest of the year. New management is committed to avoiding land sales to fund operations in the future and instead is focusing on creating net positive cash flows by compressing its leasing operations and creating higher-yielding extraction operations.