Chesapeake Energy Corporation (NYSE:CHK) Expected to Continue its Decline Despite Agreement with Williams Companies (NYSE:WMB)

Chesapeake Energy Corporation (NYSE:CHK) is amongst those companies on which the declining oil and gas prices have taken a toll. Oil prices, over the past 12-months, have declined by more than 50%, resulting in a loss of over 60% to the company stock. As a result CHK executives have started efforts to reduce operating costs, so as to maximize their profit margins. Recently, Chesapeake signed a gas gathering agreement with Williams Companies (NYSE:WMB). As per the agreement, the two companies would combine efforts to extract gas from the Haynesville and Utica shale regions.

The said deal had been in the pipeline for some time and CHK CEO, Doug Lawler, had even hinted on reaching a positive agreement in the 2Q2015 conference call. Investors will, however, have to wait to gain any real benefits out of this deal. It would not be until the start of 2016 that Chesapeake will register improvements in its per unit gathering rates. Furthermore, lower operating costs would mean that CHK would be looking forward to extracting the maximum volumes possible. Currently, CHK is regarded as amongst the top producers of natural gas in the country and larger volumes would mean that it might soon become the biggest stakeholder in the natural gas sector.

Unfortunately, at the moment analysts believe that the company would continue to lose value in the stock market. However, at the same time majority of these analysts classify the stock as a hold, which could hint at some long-term earning potential. The agreement with Williams is of crucial importance to the company right now and it is expected that things should run smoothly from now on. Williams Companies would be gaining more finances as part of a fixed fee on the two fields, while CHK would be maximizing its production capacity, while keeping the costs under control.

Chesapeake Energy Corporation (NYSE:CHK) closed at a share price of $7.92, after reporting a spike of 4.62% and trading 28.11 million shares during the September 14 session.

 

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Culver Stinson

Culver Stinson

Stinson is US Markets Daily’s Senior Producer for News & Public Affairs.