Why Has Chesapeake Energy Been Divesting Its Assets?


Dec. 7 2016, Updated 8:06 a.m. ET

Brief background

Until 2013 and under the leadership of Aubrey McClendon, former CEO of Chesapeake Energy (CHK), the company had been aggressively purchasing acreage positions and racking up its debt. Decreasing natural gas prices (UGAZ) added further pressure.

At the end of December 2014, Chesapeake Energy had $11.8 billion in total debt, which fell to $9.7 billion at the end of December 2015. At the end of 3Q16, CHK had $8.7 billion in total debt. The chart below shows the extent to which CHK has reduced its 2017 maturing and puttable debt obligations since 3Q15.

Chesapeake Energy (CHK) has managed to reduce its debt mostly through asset diversiture, debt exchanges, open-market repurchases, and equity-for-debt exchanges. For additional details, please read Markets Like What Chesapeake Is Doing with Its Debt.

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After Chesapeake Energy’s Haynesville divestment news was released, the company stated on December 5, “With our long-term target of $2 to $3 billion in debt reduction, we will continue to look for opportunities to accelerate value through the sale of additional non-core assets in 2017 and beyond. Through the continual optimization of our asset base, reduction in our net leverage, improvement in liquidity and cash flow generating capabilities, we believe Chesapeake is well positioned for the years ahead.”

Another company that has been taking steps to reduce its debt is Whiting Petroleum (WLL). Anadarko Petroleum (APC) is also battling a high debt load. All these companies form ~6% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).


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