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Chesapeake's Operational Efficiency, Cost-Cut Efforts Impress

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On Nov 5, 2015, we issued an updated research report on independent oil and gas company, Chesapeake Energy Corp.CHK .

Chesapeake remains one of the industry's most active players in managing asset portfolio through a combination of acquisitions and disposals. With a bigger inventory of unconventional resources than probably any other domestic independent, Chesapeake boasts a leading position among peers. The company has significant holding in the top unconventional liquids-rich plays comprising Eagle Ford, Utica, Granite Wash, Cleveland, Tonkawa, Mississippi Lime and Niobrara as well as in the Marcellus, Haynesville/Bossier and Barnett natural gas shale plays.

Also, the company announced a cut in its 2015 capital spending. This should help it in improving cash flows as the pricing weakness continues to weigh on financials. Despite the 26% investment cut, however, Chesapeake expects production to grow about 3-5% from that in the last year.

Chesapeake has increased its production guidance for 2015 to 640-650 thousand barrels of oil equivalent (MBoe) per day from 635-645 MBoe per day. The company intends to make remarkable cost-cut efforts and foresees efficiency gains in its core operating areas. Chesapeake has the deepest inventory in the preeminent part of Utica as well as some of the finest locations in Eagle Ford and Marcellus. These are likely to help the company in achieving its target.

Chesapeake is on track with the plan of reducing its long-term debt by monetizing its assets and cutting lease-hold spending. This monetization initiative is mainly intended for coping with the mounting debt level as well as for filling the funding gap for its 2015 expenditures that resulted from the volatile natural gas prices .

Since natural gas accounted for over 70% of Chesapeake's 2014 production, its results are particularly vulnerable to fluctuations in the commodity price. The company - which is the second-largest natural gas producer in the U.S. - has been in the news for struggling to fund its capital budget amid diminishing cash flows in a weak natural gas price scenario.

Though Chesapeake's ongoing asset monetization initiatives are working well, the company's balance sheet is still more leveraged than its peers. At the end of the third quarter, the debt balance was $10.7 billion representing a debt-to-capitalization ratio of 68.0%.

Zacks Rank and Other Stocks

Chesapeake holds a Zacks Rank #2 (Buy). Other notable stocks from the same space are FutureFuel Corp. FF , Paragon Offshore plc PGN and Seadrill Partners L.P SDLP .

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CHESAPEAKE ENGY (CHK): Free Stock Analysis Report

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FUTUREFUEL CORP (FF): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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