What Is Chesapeake’s Strategy To Survive The Current Commodity Downturn? What Is Its Progress So Far?

-97.96%
Downside
83.48
Market
1.70
Trefis
CHK: Chesapeake Energy logo
CHK
Chesapeake Energy

The ongoing commodity slump has severely impacted the revenue and earnings of oil and gas producers, such as Chesapeake Energy. As a result, the second largest natural gas producer has developed a four point strategy to weather the current down cycle. The strategy would entail:

  • Maximizing liquidity – The company aims to reduce its capital budget by more than 50% to preserve its depleting cash flows. For the full year, the company expects to spend $1.26-$1.76 billion on its exploration and drilling activities. Further, the company aims to reduce its operating costs significantly to maintain its operating margins.
  • Optimizing portfolio – Given the paucity of cash to finance its capital spending program, Chesapeake has been resorting to divestitures. The company signed an agreement to sell roughly 42,000 net acres of STACK play in Oklahoma for $470 million. In addition, the company has deals worth $950 million either signed or closed to reach its annual target of $1.2-$1.7 billion in asset sales.
  • Increasing cash flows – In order to improve its EBITDA, and, in turn, the cash flows, Chesapeake is consistently negotiating better terms for its gathering and transportation agreements.
  • Improving Capital Structure – The oil boom had resulted in a huge debt on Chesapeake’s balance sheet. However, in order to save itself from bankruptcy, the company has been actively refinancing its debt due within the next two years at lower rates.

Below we provide a snapshot of Chesapeake’s strategy and status at the end of 1Q’16.

CHK-Q&A-1Q16-2

Relevant Articles
  1. Will Chesapeake See Improved Results In 2019?
  2. Higher Oil Output And Better Pricing To Drive Chesapeake’s 3Q’18 Results
  3. Factors That Will Drive Chesapeake Energy’s Value In The Next Two Years
  4. Chesapeake Q2 Earnings Preview: Commodity Price Strength and Operational Efficiency To Drive Growth
  5. What Factor Is Driving Chesapeake’s Stock Rally?
  6. Key Takeaways From Chesapeake’s Q1

Have more questions about Chesapeake Energy (NYSE:CHK)? See the links below:

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Chesapeake Energy

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research