Chesapeake Energy Corporation
(
CHK
) has struck a deal with a Fort Worth-based oil and gas producer
Energy & Exploration Partners Inc. to sell off its acreage in
the Eaglebine oil and gas formation, Texas. The total consideration
of the transaction is $125 million.
The agreement covers 57,275 net acres in the Eaglebine formation in
Texas comprising both Eagle Ford Shale and Woodbine Sandstone.
Although Chesapeake declined to comment on the latest transaction,
Energy & Exploration Partners expects it to close in the fourth
quarter of this year, according to its filing with the Securities
and Exchange Commission.
Of late, Chesapeake has been in the news as it is under pressure to
fund its capital budget amid diminishing cash flows given the
falling natural gas prices. This Oklahoma City-based company is
trying hard to minimize capital expenditure through its divestiture
program and intends to reduce its capital spending commitments. It
intends to devolve as much as $11.5 billion to $14.0 billion worth
of assets this year and an additional $4 billion to $5 billion in
2013.
Though Chesapeake's ongoing asset monetization initiatives are
working well, its balance sheet is still more leveraged than its
peers. The company also exhibits a weak financial profile with a
huge debt balance. At the end of the second quarter, the debt
balance stood at $14,329 million, representing a
debt-to-capitalization ratio of 42.0% (versus 44.2% in the
preceding quarter). Operating cash flow decreased 25.8% year over
year to $895 million.
Now, given the gas price scenario, Chesapeake intends to deploy
more funds toward liquids. In particular, the company plans to
invest heavily in the development of its holdings in the Eagle Ford
Shale, Granite Wash and Mississippi Lime. We appreciate its
initiative of deploying more funds toward liquids, a trend common
even among its peers,
Range Resources Corporation
(
RRC
) and
ConocoPhillips
(
COP
).
However, we prefer to remain on the sidelines and see the stock
performing in line with the broader market. Chesapeake holds a
Zacks #3 Rank, which is equivalent to a Hold rating for a period of
one to three months. We maintain our long-term Neutral
recommendation for the company.
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