Chesapeake Energy Case Study
Autor: Kermit The Kritik • September 25, 2016 • Case Study • 5,937 Words (24 Pages) • 917 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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