CHK Stock — Chesapeake Is Still Struggling
The problem with CHK has been its huge debt load.
In an effort to expand the company’s portfolio of gas fields and unconventional assets, Chesapeake CEO Aubrey McClendon outspent cash flows for 19 of the 20 years he was in charge. That wasn’t so much a problem when natural gas was at $15 per MMBtu. Unfortunately, during the fall in prices, that debt ballooned out of control and forced the company to put the “For Sale” on a number of prized properties and assets. Those sales included some pretty core and cash-flow-heavy fields.
Even after McClendon’s ouster, the assets sales at CHK have continued and have now reached “the kitchen sink” in terms of what’s going.
CHK just announced that it is considering selling or spinning off its oil field services unit to raise money. The business’s only assets are 115 conventional-style land drilling rigs and nine hydraulic fracturing rigs. The kicker is that most of these rigs are actually leased and not fully owned. Many analysts don’t expect CHK stock to see really any monetary gains from selling the oil service unit.
To that end, CHK has decided to continue selling its profitable midstream portfolio. Chesapeake will unload its natural gas compression assets for $520 million to Access Midstream Partners (ACMP) — a former subsidiary of CHK that was sold off — and Exterran Partners (EXLP).
While these asset sales have helped its cash flow issues, they haven’t helped on the production front. CHK expects its shale oil output to grow by just 1% this year. Meanwhile, overall natural gas production will fall 2%.
DVN vs. CHK Stock: And the Winner Is…
In the fight for the best natural gas stock, the verdict isn’t even close. It has to be Devon. Unlike CHK, DVN seems to be making all the right moves with regards to growing its core-asset base and increasing production. Chesapeake on the other hand, is still fighting the ghosts of McClendon.
And with CHK stock up about 35% in 2013, investors were expecting that the turnaround story would finally be playing out. But with more asset sales and terrible production growth ahead, they’re going to be disappointed. The poor production numbers caused CHK stock to drop by about 4%.
Meanwhile, DVN stock hasn’t jumped as much during 2013, and it’s both profitable and dirt cheap. DVN stock trades at a forward P/E of less than 10.
The choice is pretty clear for portfolios. For investors looking at the former natural gas stock kingpins, DVN stock takes the investment crown.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.