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Chesapeake Energy Corporation ( CHK - Analyst Report ) is contemplating to squeeze value from its oil-field service business – Chesapeake Oilfield Services LLC – by spinning it off in a public stock offering. The company aims to create value for investors and enhance the share price of the parent company.
Chesapeake plans to hold on to a majority stake of about 80% in the separated entity once it goes public. Chesapeake will try to have a hold over the service company’s board and simultaneously retain as much stock as it can. The spun off company’s operation will mainly be for Chesapeake.
Post separation, the new entity would be one of the largest service firms in the U.S. with 114 drilling rigs, a vast trucking fleet and a large hydraulic-fracturing business. Management has valued the services business at approximately $10 billion. Assuming this valuation is correct, Chesapeake Oilfield Services would have a market value in line with the recent market capitals of Helmerich & Payne ( HP - Analyst Report ) , Oceaneering International ( OII - Snapshot Report ) and Rowan Companies ( RDC - Analyst Report ) .
The public offering by Chesapeake is part of a series of initiatives lined up for 2012. With plans of generating an estimated $13 billion in cash in 2012, the company has quickly embarked on its mission to create more joint ventures and focus on more profitable businesses.
Chesapeake intends to drop its holdings in Frac Tech Services Inc. – an oil-field services firm that is planning to go public and in Oklahoma based Chaparral Energy Inc. These sales are expected to raise nearly $3 billion for the company.
Moreover, Chesapeake is in search of joint venture (JV) partners for its oil fields in North Dakota and the Mississippi Lime formation in northern Oklahoma and southern Kansas, including an unrevealed area where it is spending heavily to lease property.
Earlier in the month, Chesapeake signed a letter of intent with an undisclosed international energy company to form a JV through which the latter will acquire a 25% stake in approximately 650,000 net acres of leasehold in the Utica Shale play.
Oklahoma-based Chesapeake is an independent energy company engaged in the acquisition, development, and production of onshore U.S. natural gas resources. The company has grown rapidly and now ranks the second-largest natural gas producer in the country after ExxonMobil Corp. ( XOM - Analyst Report ) .
Chesapeake holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. For the long term, we maintain a Neutral rating on the stock.
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