Independent oil and natural gas company Chesapeake Energy Corporation (CHK) announced plans to divest its Fayetteville Shale properties along with its stakes in two private companies, Frac Tech Holdings, LLC and Chaparral Energy Inc in order to reduce its long-term debt level by 25% over the next two years. The sale is expected to be completed within the first half of 2011.
This initiative forms a part of the company’s 2011–12 strategic and financial “25/25 Plan’” and is expected to generate pre-tax proceeds of almost $5.0 billion. Chesapeake targets to utilize a part of the sale consideration to trim about $2.0 billion to $3.0 billion of its shorter-dated senior notes and cut down on borrowings under its revolving bank credit facility.
Chesapeake holds about 25.8% interests in Cisco, Texas based oilfield-service company Frac Tech and 20.0% in oil-and-gas producer Chaparral Energy, of Oklahoma City.
With leasehold of approximately 487,000 net acres in the Fayetteville Shale, Chesapeake is the second-leading producer in the field, delivering about 415 million cubic feet equivalent of natural gas every day.
Headquartered in Oklahoma City, Chesapeake’s operations are focused on acquisition, development and production of onshore U.S. natural gas resources. The company also owns the largest combined inventory of onshore leaseholds and 3-D seismic acreage in the U.S.
In our opinion, Chesapeake is one of the industry’s most active players in managing its asset portfolio through a combination of acquisitions and disposals. In recent times, Chesapeake signed its second deal with China’s top offshore oil producer CNOOC Limited (CEO) for the sale of stakes in its U.S. Niobrara shale project for $570 million.
We are maintaining our long-term Neutral recommendation on the stock. Chesapeake currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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