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Chesapeake Poised for Growth on Efficient Cost-Cut Measures
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On May 30, 2016, we issued an updated research report on Oklahoma-based Chesapeake Energy Corporation (CHK - Free Report) .
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 aimed to cope with the mounting debt level as well as to fill the funding gap for its 2016 expenditures that resulted from volatile natural gas prices.
The company foresees remarkable cost-cut efforts as well as efficiency gains in its core operating areas. Chesapeake has the deepest inventory in the preeminent part of the 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.
Chesapeake announced a cut in its 2016 capital spending. For 2016, the company expects capital expenditure in the range of $1.3–$1.8 billion, down 57% from $3.6 billion in 2015. This should help the company in improving cash flows as the pricing weakness continues to weigh on financials.
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 resource potential than probably any other domestic independent, Chesapeake boasts a leading position among the top unconventional liquids-rich plays comprising Eagle Ford, Utica, Granite Wash, Cleveland, Tonkawa, Mississippi Lime and Niobrara and in the Marcellus, Haynesville/Bossier and Barnett natural gas shale plays.
However, Chesapeake’s oil exposure, though limited, further increases bearishness on the stock as the commodity has nosedived since Jun 2014. With crude prices anticipated to remain weak throughout 2016, financials are likely to remain pressed.
For 2016, Chesapeake expects total production, after adjusting for asset sales, in the range of flat to 5% decline from 2015. Though the company is the second-largest natural gas producer in the U.S., it has been struggling to fund its capital budget amid diminishing cash flows in a weak natural gas price scenario.
Though Chesapeake’s ongoing asset monetization initiatives are working well, the company’s balance sheet is still more leveraged than its peers. At the end of the first quarter, the company’s debt balance was $9.4 billion. In the reported quarter, the company retired its 3.25% Senior Notes due Mar 15, 2016, and repurchased approximately $282 million of debt due in 2017 at an average discount of approximately 39%.
Stocks to Consider
Currently, Chesapeake carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the oil and gas sector include CVR Refining, LP , Murphy USA Inc. (MUSA - Free Report) and Braskem S.A. (BAK - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy).
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Chesapeake Poised for Growth on Efficient Cost-Cut Measures
On May 30, 2016, we issued an updated research report on Oklahoma-based Chesapeake Energy Corporation (CHK - Free Report) .
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 aimed to cope with the mounting debt level as well as to fill the funding gap for its 2016 expenditures that resulted from volatile natural gas prices.
The company foresees remarkable cost-cut efforts as well as efficiency gains in its core operating areas. Chesapeake has the deepest inventory in the preeminent part of the 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.
Chesapeake announced a cut in its 2016 capital spending. For 2016, the company expects capital expenditure in the range of $1.3–$1.8 billion, down 57% from $3.6 billion in 2015. This should help the company in improving cash flows as the pricing weakness continues to weigh on financials.
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 resource potential than probably any other domestic independent, Chesapeake boasts a leading position among the top unconventional liquids-rich plays comprising Eagle Ford, Utica, Granite Wash, Cleveland, Tonkawa, Mississippi Lime and Niobrara and in the Marcellus, Haynesville/Bossier and Barnett natural gas shale plays.
However, Chesapeake’s oil exposure, though limited, further increases bearishness on the stock as the commodity has nosedived since Jun 2014. With crude prices anticipated to remain weak throughout 2016, financials are likely to remain pressed.
For 2016, Chesapeake expects total production, after adjusting for asset sales, in the range of flat to 5% decline from 2015. Though the company is the second-largest natural gas producer in the U.S., it has been struggling to fund its capital budget amid diminishing cash flows in a weak natural gas price scenario.
Though Chesapeake’s ongoing asset monetization initiatives are working well, the company’s balance sheet is still more leveraged than its peers. At the end of the first quarter, the company’s debt balance was $9.4 billion. In the reported quarter, the company retired its 3.25% Senior Notes due Mar 15, 2016, and repurchased approximately $282 million of debt due in 2017 at an average discount of approximately 39%.
Stocks to Consider
Currently, Chesapeake carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the oil and gas sector include CVR Refining, LP , Murphy USA Inc. (MUSA - Free Report) and Braskem S.A. (BAK - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>