Chesapeake Energy Corporation
) has spun off of its oilfield services business into a
stand-alone, publicly traded company called
Seventy Seven Energy Inc.
). The new entity was earlier held under Chesapeake Oilfield
In May 2014, that the company announced the tentative strategic
spilt, which received the board's approval in June. The move is in
line with the company's ongoing strategy of shifting focus from
natural gas drilling to liquids production.
Seventy Seven Energy owns 118 rigs and is involved in drilling,
hydraulic fracturing, rig relocation as well as other related
services. The divested business generated revenues of $2.2 billion
last year - approximately one-eighth of the company's total
revenue. Of Chesapeake Energy's 10,800 employees, 5,200 have been
moved to Seventy Seven Energy.
Chesapeake Energy's shareholders received one share of SSE common
stock for every 14 shares of Chesapeake Energy common stock held at
the close of business on the record date of Jun 19. The share
distribution took place after the close of business on Jun 30,
2014. Post distribution, SSE became an independent, publicly traded
company, and Chesapeake Energy retained no equity interest.
Chesapeake Energy's spin-off was aimed at reducing costs and debts
as well as increasing the market value of its assets. Overall, the
company estimates funds exceeding $4 billion to be generated in
2014 from its spin-off and asset divesture plans. Year-to-date, the
company has generated around $925 million through asset disposal.
For 2014, Chesapeake Energy expects capital expenditure in the
range of $5.0-$5.4 billion. At the end of the first quarter, this
leading U.S. natural gas producer had a cash balance of just over
$1 billion. Its long-term debt stood at $12.7 billion, representing
a debt-to-capitalization ratio of 39.0%.
In May, the company raised its full-year total production growth
outlook on an adjusted basis to 9-12% from 8-10%, to reflect
higher-than-expected natural gas liquids volumes. However, as the
company shifts its focus to more liquid-rich plays, it expects
liquids production to increase approximately 29-33% in 2014.
Chesapeake Energy remains one of the industry's most active players
in managing asset portfolio through a combination of acquisitions
and disposals. With the largest inventory of unconventional
resource potential than probably any other domestic independent,
Chesapeake Energy boasts a leading position among the top
unconventional liquids-rich plays, comprising Eagle Ford, Utica,
Granite Wash, Cleveland, Tonkawa, Mississippi Lime and Niobrara and
in the Marcellus, Haynesville/Bossier and Barnett natural gas shale
At present, Chesapeake Energy carries a Zacks Rank #3 (Hold). Some
better-ranked oil and gas stocks include
Matrix Service Company
). Both stocks sport a Zacks Rank #1 (Strong Buy).
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