Chesapeake Energy Announces Elimination Of Common Stock Dividend

Oklahoma City-based Chesapeake said it will redirect the cash into its 2016 capital expenditure program.

The company said on Tuesday that money saved by not paying a dividend would be used to develop its “high-quality” assets. The oil and gas exploration company reported $0.11 earnings per share (EPS) for the quarter, beating the consensus estimate of $0.04 by $0.07.

The target decrease was most probably noticed by stock investors, as NYSE:CHK is right now trading -4.07% lower at $10.48 as of 14:47 New York time.

Chesapeake Energy Corp, the second-largest US natural gas producer, said on July 21 it will suspend dividend payments starting in the current quarter to save up to $240 million a year. The company’s quarterly revenue was down 45.3% on a year-over-year basis. The advancements made due to new drilling technology combined with the 2007-2009 recession, however, have created a huge glut of both oil and natural gas and prices have not recovered. That would be the company’s steepest annual loss since 2009. It gave no indication of a change to that guidance on Tuesday, however, earnings are upcoming on August 5.

Chesapeake expanded rapidly under co-founder and CEO Aubrey McClendon and was a pioneer in the shale drilling industry. Even after tens of billions in asset sales nationwide between 2012 and the first half of 2014, Chesapeake’s balance sheet remains pressured.

Chesapeake Energy Corp. (CHK) announced an updated financial strategy, which include: elimination of common stock dividend effective third quarter; sale of CHK Cleveland Tonkawa, L.L.C. properties and adjacent assets; redemption of preferred shares in CHK Cleveland Tonkawa subsidiary; and declaration of preferred stock dividends.

“Clearly, management believes that preservation of cash is more important than appeasing a beaten-down shareholder base’s desire for dividend income”. “We view this as prudent to improve financial liquidity”. Analysts at Vetr downgraded shares of Chesapeake Energy from a “strong-buy” rating to a “buy” rating and set a $13.87 price target on the stock in a research note on Tuesday, June 30th.

Chesapeake Energy Corporation (NYSE:CHK) is a natural gas and oil exploration and production company.

Join 80,000 oil and gas professionals who receive our weekly newsletter. Chesapeake Energy has a 52 week low of $9.40 and a 52 week high of $27.58. It may also not be Chesapeake’s last move to respond to plunging commodity prices. “We continue to move forward with multiple opportunities that will strengthen our cash flow generation capabilities”.

The dividend cut may give Chesapeake and its board breathing room to cut deals at non-distressed prices. The company had revenue of $2.76 billion for the quarter, compared to the consensus estimate of $3.68 billion.