While $1.6 billion would certainly help CHK stock, it doesn’t necessarily go too far at plugging the expect hole in Chesapeake’s cash flows this year.
Better Suited Elsewhere Than CHK Stock
The preliminary filing didn’t show any pricing information, the exchange that will be given to current shareholders or exactly how many shares CHK will own. So it’s really hard to gauge just how successful CHK will be in raising money from the spinoff. However, even with the spinoff, the firm is still facing a cash crunch and will be forced to sell more assets this year and next to pay off its debts and fund its $5.2 billion capex budget.
The problem for CHK stock is that it’s really hitting the nitty-gritty in terms of assets the firm can sell. Soon enough, Chesapeake is going to have to start really dipping into its back of tricks and begin selling off some of prime production fields. Places like the Granite Wash or Mississippian Lime aren’t cutting it anymore. Potential buyers want the juicy bits — like the Marcellus.
Overall, that’s only going to exacerbate the problem of falling production at the firm. CHK expects its shale oil output to grow by just 1% this year. Meanwhile, overall natural gas production will fall 2%
At the same time, investors may not really want the newly minted Chesapeake IPO. After all, many of the smaller players are struggling in a very cost competitive environment when it comes to fracking in North America. There’s still a glut of pressure pumping equipment, and many of the cheapest/high-tech rigs are owned by the big three — Schlumberger (SLB), Halliburton (HAL) and Baker Hughes (BHI). Investors are better suited in any of those three major players.
The bottom line continues to be that CHK stock is a turnaround play — one that has only managed to solve a few of its problems. The newly minted Chesapeake IPO of Seventy Seven Energy isn’t really going to help CHK stock much in the grand scheme of things.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.