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Chesapeake Energy Corp. not likely to change hands, analysts say

Tumbling natural gas and stock prices have left some energy analysts who watch Chesapeake Energy Corp. questioning whether the company can meet its previously announced spending targets.
by Adam Wilmoth Published: April 29, 2012

Chesapeake Energy Corp.'s stock price has tumbled 48 percent since August as natural gas prices have plummeted and questions have arisen about the company's ability to meet its announced spending goals.

Strong assets and a low sales price often lead to takeover talk, but one thing agreed on by the widely varied analysts who follow the company is that Chesapeake is not likely to change hands anytime soon.

“If I'm a major (integrated oil company) and would have the chance to take over these assets and get them at a steal, I'd go for it,” said Mike Kelly, an energy analyst for Global Hunter Securities in Houston. “But you're going to have to claw them out of (CEO) Aubrey (McClendon's) cold, dead hands. He's not giving the company up.”

Oklahoma law allowing staggered terms for directors makes a hostile takeover more difficult, Kelly said.

A Chesapeake spokesman declined to comment about the company's finances because Chesapeake's first-quarter earnings are scheduled for release Tuesday.

Analyst Philip Weiss agrees that Chesapeake is not a likely takeover target, but for a different reason.

“Nobody wants that,” Weiss said of the Oklahoma City energy company.

Chesapeake has used a series of complicated financial structures in recent years to raise the cash it needs to expand into lucrative oil fields instead of the natural gas plays the company has focused on throughout its history.

The plans include selling interest in Chesapeake wells to joint venture partners and using volumetric production payment plans — or VPPs — which allow Chesapeake to receive immediate payment for years of future oil and natural gas production.

“Nobody wants to step into eight joint ventures, 10 VPPs, part ownership of a services business and all of this debt,” Weiss said. “If I'm somebody who might be on the market for assets, I'd rather buy the properties now or wait for them to go into bankruptcy and buy them at fire-sale prices.”

Analysts are mixed on their view of Chesapeake's financial future.

“The talk of bankruptcy doesn't make sense to me,” said Tim Rezvan, an analyst with Sterne Agee in New York. “They have too many assets they can sell. There's a lot they could sell to meet their needs. The worst-case environment is that they may cannibalize growth with asset sales.”

Most analysts agree Chesapeake has one of the best asset portfolios in the industry.

The company is in 11 of the country's 13 most active fields. Unfortunately, most of those areas are rich in natural gas, which has lost much of its value at the current price of $2.19 per thousand cubic feet.

Chesapeake is actively developing oil and natural gas liquids-rich areas, but the company said in February that it will be 2014 before the increased liquids production will generate enough revenue to pay for operating expenses.

Chesapeake said it plans to cover the shortfall by raising between $10 billion and $12 billion this year through asset sales, joint ventures and other financial strategies.

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by Adam Wilmoth
Energy Editor
Adam Wilmoth returned to The Oklahoman as energy editor in 2012 after working for four years in public relations. He previously spent seven years as a business reporter at The Oklahoman, including five years covering the state's energy sector....
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