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Why Chesapeake’s Net Debt Fell Last Quarter

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Chesapeake Energy’s net debt-to-EBITDA multiple

Chesapeake Energy’s (CHK) net debt-to-adjusted EBITDA multiple in the first quarter was ~4.1x. As shown in the graph below, the multiple has fallen since the first quarter of 2017. Meanwhile, CHK’s net debt increased until the fourth quarter of 2017 but fell in the first quarter of 2018. As we discussed in the previous part, CHK lowered its debt with the help of higher cash flow and crude oil prices (DBO). However, its net debt has remained high year-over-year. It had net debt of $9.4 billion in Q1 2018, compared with $9.3 billion in Q1 2017 and $10.0 billion in Q4 2017.

CHK’s trailing-12-month adjusted EBITDA have also mostly risen, increasing from ~$806 million in Q1 2017 to ~$2.3 billion in Q1 2018. They amounted to $2.5 billion in Q4 2017.

In comparison, peers Cabot Oil & Gas (COG), Noble Energy (NBL), and EQT (EQT) reported trailing-12-month adjusted EBITDA of $987 million, $2.7 billion, and $2.72 billion, respectively, in Q1 2018, versus $688 million, $1.3 billion, and $982 million, respectively, in Q1 2017.

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CHK’s recent debt reduction efforts

One of CHK’s key goals is to reduce its total debt by $2 billion–$3 billion, although the company hasn’t specified the period in which it expects to do so. In line with this strategy, the company recently sold its mid-continent properties, including its Mississippian Lime assets, for $500 million. Additionally, it sold ~4.3 million shares of FTS International (FTSI), a hydraulic fracturing service provider in which the company has owned a significant stake since 2006 and currently owns ~22.0 million shares. CHK received $74 million from the sale of the 4.3 million shares.

The company has also reduced its workforce by ~13%, resulting in an expected reduction of annual cash costs of ~$70 million. These steps have also improved the company ‘s cash flow, which we’ll discuss in the next part.

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