Will We Continue to See Momentum in Asset-Backed Deals This Year?
Source and use of cash
As we saw in the previous part, debt had been a significant source of capital for the 54 publicly traded US oil and gas producers reviewed by the Energy Information Administration (or the EIA).
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Capital expenditures are usually funded from cash from operating activities (or CFO), debt issuances, equity issuances, or asset sales. In the image above we can see that in 1Q17, the companies surveyed by the EIA have seen a considerable increase in asset sales, nearly three times the quarterly average during 2015 and 2016.
As we have discussed in this series, there were many asset transactions in 2Q17, albeit fewer than in 1Q17. While the pace of 2H17 deal activity could be less than in 1H17, investors will watch to see if asset sales will continue to be a significant source of cash for major US oil and gas players this year.
A key example of a company that has heavily relied on asset sales to reduce its debt is Chesapeake Energy (CHK). Other measures that CHK has used include debt exchanges, open-market repurchases, and equity-for-debt exchanges. For more information, read How Would You Play Chesapeake Energy?