Oklahoma-based oil and gas producer Chesapeake Energy Corporation (CHK) has postponed its planned asset sale to ensure that terms and conditions set forth by its creditors are not jeopardized.
Per the Fitch Ratings estimate, Chesapeake faces a funding gap of $10 billion in 2012. In order to reduce its debt, the company had planned to raise about $14 billion by divesting its assets and through further deals.
But Chesapeake reasoned that while the monetization of its assets would ease its funding problems, it would, at the same time, decrease its cash flow and the worth of security used to back its debt.
Thus, in compliance of its credit facility, the company plans to delay its assets sale or choose some other asset for divestment. As Chesapeake anticipates expenses on its wells and assets to be around $23.1 billion in 2012 and 2013, it plans to fund the majority of this expense through asset monetization.
The massive fall in natural gas prices in 2011 has created a huge funding gap for Chesapeake. To overcome this problem, Chesapeake like Range Resources Corporation (RRC) and ConocoPhillips (COP) is constantly making efforts to shift to oil production from gas.
Chesapeake had initiated a 25/25 plan to reduce its long-term debt (through monetizing its assets and a reducing in lease-hold spending) by 25%, while increasing its natural gas and oil production by the same percentage for 2012.
Per the Zacks Consensus, Chesapeake’s earnings per share for the year 2012 and 2013 are estimated at $0.75 and $1.92, respectively. This represents a decline of 73.2% in 2012 and a growth of 155.5% in 2013.
Chesapeake holds a Zacks #5 Rank, which is equivalent to a Strong Sell rating for a period of one to three months. Longer term, we maintain our Neutral recommendation on the stock.
CHESAPEAKE ENGY (CHK): Free Stock Analysis Report
CONOCOPHILLIPS (COP): Free Stock Analysis Report
RANGE RESOURCES (RRC): Free Stock Analysis Report
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