Chesapeake Energy Corporation CHK announced the commencement of private offers to refinance existing senior unsecured notes worth $1.5 billion aggregate principal amount with its new 8.00% Senior Secured Second Lien Notes due 2022. The exchange offer will expire on Dec 30, 2015.
At the end of the third quarter, Chesapeake had a cash balance of $1,759 million. The debt balance was $10,674 million, representing a debt-to-capitalization ratio of 68.0%.
Chesapeake remains one of the industry’s most active players in managing asset portfolio through a combination of acquisitions and disposals. With a bigger inventory of unconventional resources than probably any other domestic independent, Chesapeake boasts a leading position among its peers. The company has significant holding in the top unconventional liquids-rich plays comprising Eagle Ford, Utica, Granite Wash, Cleveland, Tonkawa, Mississippi Lime and Niobrara as well as in the Marcellus, Haynesville/Bossier and Barnett natural gas shale plays.
Also, the company recently announced a cut in its 2015 capital spending. This should help it in improving cash flows as pricing weakness continues to weigh on financials. Despite the 26% investment cut, however, Chesapeake expects production to grow about 3–5% from last year.
Chesapeake projects production of 640–650 thousand barrels of oil equivalent (MBoe) per day for 2015 instead of 635–645 MBoe per day guided earlier. The company intends to make remarkable cost-cut efforts and foresees efficiency gains in its core operating areas. Chesapeake has the deepest inventory in the preeminent part of Utica as well as some of the finest locations in Eagle Ford and Marcellus. These are likely to help the company in achieving its target.
Moreover, Chesapeake is on track with its plan of reducing long-term debt by monetizing its assets and cutting lease-hold spending. This monetization initiative is mainly intended for coping with the company’s mounting debt level and filling the funding gap in its 2015 expenditures that resulted from volatile natural gas prices.
Since natural gas accounted for over 70% of Chesapeake’s 2014 production, its results are particularly vulnerable to fluctuations in the commodity price. The company – which is the second-largest natural gas producer in the U.S. – has been in the news for struggling to fund its capital budget amid diminishing cash flows in a weak natural gas price scenario.
Chesapeake carries a Zacks Rank #3 (Hold). Some better-ranked players in the energy sector are Energy Transfer Equity, L.P. ETE, Murphy USA Inc. MUSA and Boardwalk Pipeline Partners, LP BWP. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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