Chesapeake Is Trading at a Premium Compared to Its Peers


Apr. 5 2016, Updated 12:06 p.m. ET

Chesapeake’s relative valuation

In the previous part of this series, we compared Chesapeake Energy’s (CHK) EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple against its own historical levels. In this part, we’ll look at the company’s valuation against its peers’ multiples.

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Chesapeake’s forward EV-to-EBITDA

A peer group comparison shows that Chesapeake’s forward EV-to-EBITDA multiple of ~6.4x is higher than most of its peers. For example, WPX Energy (WPX) is currently trading at a forward EV-to-EBITDA multiple of ~5.7x. QEP Resources (QEP) is trading at a multiple of ~4.7x. Gulfport Energy (GPOR) has the highest EV-to-EBITDA multiple of ~11.7. So, Chesapeake Energy appears to be overvalued compared to its peers. Together, these companies account for ~2.6% of the iShares U.S. Oil & Gas Exploration & Production ETF (IEO).

Chesapeake’s efforts to boost liquidity and manage debt

Chesapeake Energy’s presentation released on February 24, 2016, noted that it reduced $2.2 billion worth of debt in 2015 and 2016. This 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 positioned to meet its debt obligations in 2016.

To take the pressure of its balance sheet in the current energy price environment, Chesapeake Energy has been selling some of its non-core assets. It’s planning asset sales are worth $500 million–$1 billion in 2016, excluding the $700 million asset sales it announced in its 4Q15 earnings. Therefore, the total divestments will amount to $1.2 billion–$1.7 billion in 2016. Moreover, Chesapeake Energy’s 57% capex cuts in 2016 compared to 2015 will also boost its liquidity.


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