Can Chesapeake Energy Meet Its Short-Term Debt Obligations?
Chesapeake Energy’s liquidity profile
As of February 23, 2016, Chesapeake Energy (CHK) had cash on hand of more than $300 million. Combined with its $4 billion revolving credit facility, total liquidity available to CHK is $4.3 billion. CHK’s presentation released on February 24, 2016, noted that it had reduced $2.2 billion worth of debt in 2015 and 2016, which should result in reduced liabilities in the coming years. With the sale proceeds from the divestment of its remaining western Anadarko Basin oil and gas assets, the company is well positioned to meet its debt obligations in 2016.
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However, in 2017, Chesapeake Energy has debt maturities totaling $1.8 billion. To satisfy these, CHK is planning asset sales worth $500 million–$1 billion in 2016, excluding the $700 million asset sales it announced in its 4Q15 earnings. Therefore, total divestments will amount to $1.2 billion–$1.7 billion in 2016. Moreover, CHK’s 57% capex cuts in 2016 versus 2015 will also boost its liquidity.
CHK’s hedge position
To protect its cash flows against lower commodity prices, Chesapeake Energy has hedged 58% of its projected 2016 natural gas production volumes at ~$2.84 per thousand cubic feet and 56% of its projected 2016 oil production volumes at ~$47.79 per barrel.
Other companies that have hedged portions of their 2016 production include Newfield Exploration (NFX) and Cabot Oil & Gas (COG). However, Devon Energy (DVN) is not hedged in 2016. Together, NFX, COG, DVN, and CHK make up ~3% of the Energy Select Sector SPDR Fund (XLE).