Chesapeake Scrambles To Sell Assets, Shift Focus To Liquids

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Chesapeake Energy

Chesapeake Energy (NYSE:CHK) yet again reported loss for the first quarter for 2012 [1] but the loss shrank as compared to 2011 Q1. This happened largely due to slightly favorable results from the hedging activities. For the quarter, its natural gas sales dropped by nearly 40% from $788 million to $478 million and liquids sales grew by nearly 85% from $400 million to $743 million, if we look at the results without the impact of hedging activities. Other prominent trends observed during the quarter are asset monetizations and a continued shift towards liquids plays.

Chesapeake is a specialized company with an expertise in unconventional drilling, and it competes with other oil and natural gas companies like Linn Energy (NASDAQ:LINE) and Cimarex Energy (NYSE:XEC).

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Focus Towards Liquids Plays

As a consistent natural gas provider for the last decade in America, Chesapeake was hit by falling natural gas prices in the last few months. As a result, the company has rapidly shifted towards liquids in the last quarter. Chesapeake is aggressively investing in developing liquids assets and is right on track towards its goal to raise 25% production by 2012 end. At the same time it stopped production from several of its natural gas wells. If it continues to press its emphasis on liquids production with sizable proven dormant natural gas resources on its balance sheet, it would be ready for a successful future.

Asset Monetization to Fund Capex and Reduce Debt

A considerable debt burden with under performing operating results is not a sound proposition. However, Chesapeake is on track with its asset monetization plan for the year. It raised $2.6 billion in Q1 and expects another $9–11.5 billion of asset sales by the end of 2012. Primarily, the funds will be used to meet its aggressive capital expenditure budget and reduce long-term debt by 25% in 2012.

We are in the process of updating some of our forecasts to incorporate the Q1 results.

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Notes:
  1. 2012 Q1 results for Chesapeake, Chesapeake press release, May 1 2012 []