In an article, published at Motley Fool, the author stated that Chesapeake Energy Corporation (NYSE:CHK) is keen to accelerate production growth. When the company announced its second-quarter financial report, it surprised investors by increasing its guidance of production growth.
The company didn’t intend to be conservative and failed to keep its adjusted production flat considering the existing market oversupply. It decided to accelerate production growth, which is a bold step by the company. As a matter of fact, the company can have kept its plans at conservative end until prices improve. It must have taken steps to reduce its capital expenditures so that debt could have decline in the coming period.
Chesapeake Energy began 2015 with a capex budget ranging in between $4 million and $4.5 billion, which was 26%, lower compared to amount it spent in the prior year. This spending was anticipated to compel adjusted production growth of almost 3% to 5% over the previous year. But a month after reporting the budget the company reduced $500 million due to the continued decline in commodity prices. This reduction was projected to have an obvious impact on production growth.
However, due to considerable reductions in its costs, Chesapeake Energy is well placed to deliver achieved production growth without putting in more funds than planned. The net result is growth rate of adjusted full-year production is anticipated to be 4% higher than midpoint of 1% to 3% projected growth rate.
The problem is that Chesapeake Energy Corporation (NYSE:CHK) is accelerating production growth at a time when there is no improvement in commodity prices and they are weaker than before. It has made investors question why the company isn’t willing to reduce capex for flat production growth and get additional funds to reduce debt. CEO Doug Lawler suggested that the returns it can generate on new wells cannot be missed out.