Stormy Earnings

Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I couldn't help but notice the winding line of customers waiting for fuel from the two-pump station next to my New Jersey residence, a chain of cars that extended into my driveway. Those long lines have since subsided as Hurricane Sandy brings its fury, and no doubt the storm played a part in the rush to fill-up. More than likely, however, the lines also has something to do with the billboard sign that reads '$3.45 per gallon' for cash-paying customers purchasing regular-grade gasoline. That price has dropped about $0.50 from its recent peak only weeks ago, amid the transition to winter petroleum and falling crude-oil prices. Of course, all bets for lower gas prices could soon be off due to the slowdown in refinery activity from the hurricane.

Indeed, a confluence of events in the energy industry have been unfolding, not the least of which involve Hurricane Sandy, which caused companies including Entergy (NYSE: ETR) and NRG Energy (NYSE: NRG) to postpone their quarterly results. The storm was expected to suppress demand for fuel as a result of power outages and business closings that would reduce overall power usage.

One company that is planning to report its earnings results on schedule oin Nov. 2 is Cheasapeake Energy (NYSE: CHK).

It's a company whose share price has been battered in light of a trend of lower natural gas prices, exacerbated by heavy shorting activity and last year's warmest winter season in a century. Nonetheless, the company is on a selling spree and is on the path to shedding as much as $18 billion in non-core assets through 2013, according to a recent interview with Chesapeake CEO Aubrey McClendon on CNBC. With the proceeds, the company has plans to repay loans, increase production, and reduce its overall debt

Most recently, Chesapeake received nearly $3 billion in cash from its asset sale in the Permian Basin in Texas. Chesapeake sold assets in its southern and northern Delaware Basin positions in the Permian Basin to subsidiaries of Royal Dutch Shell and Chevron, in addition to Midland Basin assets to EnerVest. The combined value of the sales is some $3.3 billion, of which the company has received $2.8 billion, according to a recent SEC filing.

Chesapeake has been vocal about the impact that the trend of lower natural gas has had on its business. Indeed, persistent lower gas prices have prompted the company's expanded focus beyond traditional natural gas production to liquefied natural gas and oil production. The company's core focus now rests on a total of 10 fields that represent unconventional energy production across the following states:  Texas, Pennsylvania, West Virginia, Ohio, Oklahoma, Wyoming and Louisiana.

In its 3Q, Chesapeake is expected to provided updates on its most recent asset sales. The stock is trading 32% below its 52-week high.

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Entergy, which was scheduled to report its earnings on Oct. 30, has pushed back 3Q results until Nov. 5 as a result of Hurricane Sandy. The company just declared a quarterly dividend of $0.83 per share, and its stock price has fallen 3% from the 52-week high. The dangers of nuclear power were pronounced in light of Hurricane Sandy, drudging up memories of the nuclear fiasco that unfolded in the Fukushima region of Japan during an earthquake in 2011.

In its 2Q, Entergy boasted of a 20-year extension in its license to operate its Pilgrim Nuclear Power Station in Massachusetts, amid support from the Nuclear Regulatory Commission. More recently, the utility has been battling to maintain operation at another of its nuclear sites, this one in suburban New York. Entergy is pushing for the rights to continue operating Indian Point nuclear for another two decades, and in doing so has received push-back from the likes of residents and Governor Andrew Cuomo.  

NRG Energy is also delaying its quarterly results and will report 3Q earnings on Nov. 2. The stock has been a victim of lower natural gas prices. Shares have increased 22% year-to-date but are down 9% from 2009 levels. NRG expects that its acquisition of GenOn, which most recently received the backing of the Texas Public Utility Commission, will bolster its bottom-line growth. It expects that an NRG/GenOn combination would produce net income of between $2.6-and-$2.8 billion by 2014, compared with the $1.8 billion in earnings NRG earned in 2011, according to The Wall Street Journal. Nonetheless, the regulatory wheels for utility mergers turn slowly.

Gasoline for $3.45 per gallon is cheap,  in light $4/plus per gallon that gas prices have attained in recent years. Nonetheless, prices still exceed the levels that Chesapeake CEO McClendon believes that the U.S. can attain albeit with a shift toward natural gas-fueled vehicles, based on his recent interview with CNBC. Indeed, he believes resource discoveries such as those Chesapeake has uncovered in places like Ohio could in fact return the U.S. to more moderate gas prices that resemble $2 per gallon. That would only make those lines at the gas pumps longer, but it could do wonders for the U.S. economy.


GerelynT has no positions in the stocks mentioned above. The Motley Fool has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, short JAN 2014 $15.00 puts on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, and long JAN 2014 $30.00 calls on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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