Chesapeake Energy Corp. is planning a series of moves designed to reduce its debt and financial complexity with only a minimal impact on its push to increase production.
The Oklahoma City-based oil and natural gas company laid out its plans Friday morning before company executives outlined their strategy for industry analysts who cover Chesapeake.
Chesapeake will spin off its oil-field services business and sell some of its noncore assets. The moves, as planned, would push the total value of this year’s sales and divestitures to about $4 billion.
“We expect that the transactions we are announcing today will result in a net leverage reduction to Chesapeake of nearly $3 billion, while only reducing our 2014 production by 2 percent and our operating cash flow by $250 million,” CEO Doug Lawler said Friday in a news release.
He said the moves also would cut Chesapeake’s interest expense and dividend payments by about $70 million this year, while eliminating $200 million in planned capital projects for the remainder of 2014.
Chesapeake’s stock dipped nearly 5 percent on Friday, falling $1.35 to $27.64 a share, but Oppenheimer analyst Fadel Gheit is impressed with the company’s outlook.
“I thought the CEO provided the needed leadership and vision for the future,” Gheit said. “The strategy is working and I think Chesapeake is turning the corner.”
About the strategy
Chesapeake is poised to turn subsidiary Chesapeake Oilfield Operating LLC into a standalone company called Seventy Seven Energy.
The new firm, which will be led by CEO Jerry Winchester, will include companies offering drilling, hydraulic fracturing, oil-field rentals, rig relocation and fluid handling and disposal. It has about 5,200 employees, with operations in a dozen states.
Chesapeake expects the spinoff, which could be completed by June 30, to be tax-free for shareholders.
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