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Chesapeake Energy Case Study

Autor:   •  September 25, 2016  •  Case Study  •  5,937 Words (24 Pages)  •  473 Views

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Tickers

CHK/ SSE

Sector

Oil & Gas E&P / Oilfield Svcs.

Country

USA

Primary stock exchange

NYSE

Closing Price ($)

26.17/23.74

Market Cap.( $bn)

17.5/ 1.1

Fair value per share($)

CHK

~31

SSE

~27

CHESAPEAKE ENERGY

Production (mmboe)

 2013a

242

 2014e

246

 2015e

267

Net Realizations ($/boe, ex. Derivative gains and losses)

 2013a

28.67

 2014e

29.22

 2015e

33.01

Normalized FCFF ($ millions)

  2013a

1,843

  2014e

1,421

  2015e

2,609

PF Net Debt (2014E, $mn)

12,203

SEVENTY SEVEN ENERGY

Revenue ($ millions)

  1H 2014a

957

  2014e

1,965

  2015e

2,235

Adj. EBITDA ($ millions)

  1H 2014a

206

  2014e

485

  2015e

589

Adj. EBITDA (%)

  1H 2014a

21.6

  2014e

24.7

  2015e

26.4

PF Net Debt ($mn)

1,564

On June 30, 2014, Oklahoma City-based oil and natural gas producer Chesapeake Energy (NYSE: CHK) spun-off its oilfield services business into an independent entity Seventy Seven Energy Inc. (NYSE: SSE) through a tax-free distribution of one share of SSE common stock for every 14 shares of CHK common stock, in return for SSE taking over ~$1.5 billion of CHK debt. In our view, spin-off, together with certain other transactions involving non-core asset divestitures and "oily" acreage acquisition, positions CHK as a relatively more efficient firm that is poised to improve its production mix toward relatively high-value liquids, creating prospects for value creation. Concerning SSE, the spin-off is likely to enhance its ability to invest in fleet expansion/upgrade and third-party customer acquisition, which should help drive revenue growth and margin improvement. Recommend a Buy on both CHK and SSE.

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