Chesapeake Energy Makes Efforts to Revive Its Balance Sheet



Key objectives and strategies

To take pressure of its balance sheet in the current energy price environment, Chesapeake Energy (CHK) has been selling some of its non-core assets. In the past two years, the company has shed ~$10 billion worth of assets. These include its Marcellus assets and a portion of its Utica Shale assets, which it sold to Southwestern Energy (SWN) for ~$5.38 billion in 2014.

In line with this strategy, Chesapeake is in the process of selling additional assets. It anticipates that these sales will fetch the company $200 million–$300 million between 4Q15 and 1Q16.

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Chesapeake’s reduced spending

Like many upstream companies, Chesapeake has also scaled back its 2015 capital expenditure. It now anticipates spending $3.4 billion–$3.9 billion, compared to the initial guidance of $4 billion–$4.5 billion it had provided at the start of the year.

Many oil and gas companies have slashed their 2015 capital expenditures in response to the weakness in crude oil prices. Apache (APA) and Anadarko Petroleum (APC) slashed their 2015 capital expenditures by ~65% and ~33%, respectively, compared to 2014. Marathon Oil (MRO) also announced a capex reduction of ~40% compared to 2014. For an in-depth analysis of Apache, you can read Market Realist’s series Apache: A Key Investor Overview.

These companies combined make up ~5.6% of the Energy Select Sector SPDR ETF (XLE).

Chesapeake also eliminated its common stock dividend, which will save it approximately $240 million annually.

Key management comments

Doug Lawler, CEO, said in the 3Q15 earnings release, “The many actions that we have taken this quarter, including executing new gas gathering agreements, amending our revolving credit facility, reducing complexity and commitments and lowering our business costs, have significantly increased Chesapeake’s ability to create additional value.”

Analyst targets for Chesapeake

The above graph notes high, low, average, and median analyst target prices for CHK. The consensus target price of $6.9 indicates positive returns of about 70% compared to current levels over the next 12 months.

In the next part of this series, we’ll see how Chesapeake’s production mix and realized prices have evolved.


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