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Tellurian Eyeing Chesapeake’s Haynesville Assets—Is a Deal Imminent?

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Chesapeake Energy’s stock performance

Amid reports that Tellurian (TELL) was considering purchasing Chesapeake Energy’s (CHK) Haynesville assets, CHK stock has been unsteady.

Following the news on March 8, CHK stock closed 2.3% lower but rose 4.4% the next day. In the week ended March 16, CHK stock has declined ~1.3%.

CHK’s Haynesville operations saw production levels of 155,000 boepd (barrels of oil equivalent per day) in 4Q17.

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Does the Tellurian deal fit with CHK’s strategy?

According to a Wall Street Journal report, Tellurian had offered Chesapeake Energy equity as part of the deal, which might not be of interest to CHK given its huge debt load. CHK would want to use asset divestments as a means to lower its debt as it had done in the past.

Chesapeake Energy’s management is pursuing multiple transactions toward its goal of removing $2.0 billion–$3.0 billion of debt from its balance sheet, chiefly via asset sales.

Chesapeake Energy’s management noted during the 4Q17 earnings conference, “Restoring the health of our balance sheet remains a top priority. We are in active conversations regarding multiple, large divestiture transactions and while our debt maturity schedule affords us the opportunity to be prudent in our approach, we are committed to making material progress towards our goal of $2 billion to $3 billion in debt reduction in 2018.”

The company noted that it had closed $1.3 billion in asset sales in 2017 and signed additional asset sales of ~$575.0 million, which are expected to close by the end of 2Q18.

Year-over-year performance

On a year-over-year basis, Chesapeake Energy stock has declined ~43.0%. The Energy Select Sector SPDR ETF (XLE) fell 6.7% year-over-year in comparison, while the S&P 500 SPDR ETF (SPY) rose ~15.4% in the same period.

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