Chesapeake Energy Corporation (NYSE:CHK) shares are taking their lumps as the company prepares to write-down the value of its properties related to oil and natural gas. The write-downs will be recorded in the first quarter of this year and will cause damage to the company’s already sensitive balance sheet. The write-off is due to declining prices in the industry and has already been filed with the SEC. The company is anticipating further write-downs should the decline in wholesale prices continue.
Along with the write-downs, the Chesapeake Energy Corporation (NYSE:CHK) is implementing measures to cut capital expenses along with reducing rig counts in an attempt to neutralize dwindling revenues. This is a dilemma the whole industry is facing as global wholesale pricing and domestic WTI crude continue to balance around production cost levels. They grew revenue last year by 11% but the current challenges in the wholesale environment might make future growth unreasonable to expect.
The company has not announced any plans to cut its dividend or suspend the program altogether. A dividend cut could be extremely damaging to the stock as energy companies are viewed as a safe haven from market fluctuations. The dividends they offer shield investors and add value to portfolios in tough market environments. Should the company lower or eliminate the dividend, this could be seen as a sign by shareholders that its profitability is in jeopardy. The Chesapeake Energy Corporation (NYSE:CHK) is budgeting capital expenditures of around $4-$5 billion for 2015. In 2014 it spent $6.7 billion on capital expenditures. The bright side is if the capital expenditure reductions are effective and the company is able to recover on the revenue front, it will emerge as a streamlined and much fiscally stronger company.
The stock has been beaten down lately but it is sitting on strong support. As they move past their current issues and start effectively implementing cost controls, this might be a good entry point for those looking toad it to their portfolios.