Chesapeake Asset Sales Likely to Accelerate with McClendon Departure

Chesapeake Energy's asset sale pace will likely accelerate beyond $17 billion to $19 billion in assets for 2012/2013 in light of co-founder and CEO Aubrey McClendon's departure in April, as the company's board will likely favor pulling the present value of Chesapeake's massive 15.1 million undeveloped acreage forward, according to a Jan. 30 research note from GHS Research.

The pending departure of McClendon over "philosophical differences" took GHS analysts by surprise. In a meeting with McClendon in last year's fourth quarter, GHS analysts said they came away thinking that these philosophies were more in line than worlds apart.

"In fact we were told that everything positive that could come from tighter corporate discipline at Chesapeake would in fact emerge," according to a Jan. 30 GHS research note.

Analysts were also told that the board was on the right track in terms of setting management's 2013 bonus criteria in which return on capital, efficiency gains, and hitting budgets would be the favored incentives versus prior year targets that centered almost entirely on growth.

Chesapeake Chairman Archie Dunham told company employees in an email that Chesapeake is not for sale. GHS does see value for a major who might want to make a play on Chesapeake, which has massive undeveloped acreage positions in plays such as the Utica, Marcellus, Eagle Ford, Mississippian and Power River/DJ Basin.

However, Chesapeake's intimidating capital structure, which includes seven joint ventures, $12.6 billion in long-term debt, $3 billion in preferred equity, and $2.4 billion non-controlling interests, present complications.

"We think that a major with lower cost of capital versus Chesapeake can quickly get to a starting point of $30/share of value fairly easy," GHS noted.

To meet future funding gaps, Chesapeake needs to sell a large, desirable position of undeveloped acreage in order to right-size its balance sheet, as selling production by itself is not accretive to multiples, and the loss of cash flow generation offsets an improved balance sheet, according to a Jan. 30 research note from TPH Energy Research.

"Given the current strategy, the Marcellus is the only gassy asset that fits the bill," said TPH analysts, who believe Chesapeake's Marcellus asset could fetch $8 billion, or $6.4 billion after tax.

Even after selling its single most valuable asset, it's not enough to repair the long-term leverage trajectory without making other adjustments to future plans, such as scaling back leasing and spending less on ancillary investments.

A sale of Marcellus assets would reduce 2013 cash flow by $550 to $600 million, according to TPH estimates, while reducing aggregate production by 22 percent. The cost structure of the company also would change slightly with gas differentials worsening by 10 percent to 15 percent, given transportation commitments on other assets.

All else equal and assuming no incrementally announced asset sales, TPH anticipates the company will reaccumulate $9 billion in new debt by year-end 2015 which again puts the balance sheet in an undesirable position. Chesapeake would have to further reduce drilling activity in the Mississippi Lime and the Cleveland-Tonkawa, and reduce capital expenditures by $500 million to $1 billion per year, and leasing by $300 million per year.

"Only then would Chesapeake's outspend be in-line with cash flow growth by 2015," TPH noted.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

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Chesapeake Asset Sales Likely to Accelerate with McClendon Departure

Chesapeake Energy's asset sale pace will likely accelerate beyond $17 billion to $19 billion in assets for 2012/2013 in light of co-founder and CEO Aubrey McClendon's departure in April, as the company's board will likely favor pulling the present value of Chesapeake's massive 15.1 million undeveloped acreage forward, according to a Jan. 30 research note from GHS Research.

The pending departure of McClendon over "philosophical differences" took GHS analysts by surprise. In a meeting with McClendon in last year's fourth quarter, GHS analysts said they came away thinking that these philosophies were more in line than worlds apart.

"In fact we were told that everything positive that could come from tighter corporate discipline at Chesapeake would in fact emerge," according to a Jan. 30 GHS research note.

Analysts were also told that the board was on the right track in terms of setting management's 2013 bonus criteria in which return on capital, efficiency gains, and hitting budgets would be the favored incentives versus prior year targets that centered almost entirely on growth.

Chesapeake Chairman Archie Dunham told company employees in an email that Chesapeake is not for sale. GHS does see value for a major who might want to make a play on Chesapeake, which has massive undeveloped acreage positions in plays such as the Utica, Marcellus, Eagle Ford, Mississippian and Power River/DJ Basin.

However, Chesapeake's intimidating capital structure, which includes seven joint ventures, $12.6 billion in long-term debt, $3 billion in preferred equity, and $2.4 billion non-controlling interests, present complications.

"We think that a major with lower cost of capital versus Chesapeake can quickly get to a starting point of $30/share of value fairly easy," GHS noted.

To meet future funding gaps, Chesapeake needs to sell a large, desirable position of undeveloped acreage in order to right-size its balance sheet, as selling production by itself is not accretive to multiples, and the loss of cash flow generation offsets an improved balance sheet, according to a Jan. 30 research note from TPH Energy Research.

"Given the current strategy, the Marcellus is the only gassy asset that fits the bill," said TPH analysts, who believe Chesapeake's Marcellus asset could fetch $8 billion, or $6.4 billion after tax.

Even after selling its single most valuable asset, it's not enough to repair the long-term leverage trajectory without making other adjustments to future plans, such as scaling back leasing and spending less on ancillary investments.

A sale of Marcellus assets would reduce 2013 cash flow by $550 to $600 million, according to TPH estimates, while reducing aggregate production by 22 percent. The cost structure of the company also would change slightly with gas differentials worsening by 10 percent to 15 percent, given transportation commitments on other assets.

All else equal and assuming no incrementally announced asset sales, TPH anticipates the company will reaccumulate $9 billion in new debt by year-end 2015 which again puts the balance sheet in an undesirable position. Chesapeake would have to further reduce drilling activity in the Mississippi Lime and the Cleveland-Tonkawa, and reduce capital expenditures by $500 million to $1 billion per year, and leasing by $300 million per year.

"Only then would Chesapeake's outspend be in-line with cash flow growth by 2015," TPH noted.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

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BP CEO Says Four BP Staff Most Likely Died In Amenas Attack-E-Mail

LONDON--Four members of BP PLC's (BP) staff have most likely died in the terrorist attack last week on an Algerian gas plant, the company's chief executive said Friday, adding that the U.K. oil giant will learn lessons from the tragedy.

An attack by Islamist militants in Algeria's Sahara on the In Amenas gas plant--run by BP, Statoil ASA (STL.OS) and Algerian state oil company Sonatrach--left at least 37 foreign workers dead. The event highlighted a formidable new threat for oil companies investing in the region.

In an internal e-mail to staff, BP CEO Bob Dudley said "it is now clear that four of our colleagues in all likelihood lost their lives in the attack on the In Amenas joint venture." Over the weekend, he had said the company had feared "the worst" for them.

Using unusually harsh language, Mr. Dudley said the plant was "attacked by murderers on what should have been an ordinary working day. This was an appalling act of evil--a barbarous and pre-meditated criminal attack."

But he insisted BP would help governments investigate the tragedy as well as learn lessons to avoid it being repeated.

"Governments will also be conducting their enquiries. BP will participate fully and share what knowledge and insights we have," Mr. Dudley said. "We will ensure any lessons are applied to prevent such an outrage occurring again."

The e-mail also hinted that the tragedy could hurt staff morale.

"This has been a heavy blow for BP and I can imagine people across the company asking many questions," the CEO said in the e-mail. "I am very clear about where BP goes. We go on."

Copyright (c) 2012 Dow Jones & Company, Inc.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

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BP CEO Says Four BP Staff Most Likely Died In Amenas Attack-E-Mail

LONDON--Four members of BP PLC's (BP) staff have most likely died in the terrorist attack last week on an Algerian gas plant, the company's chief executive said Friday, adding that the U.K. oil giant will learn lessons from the tragedy.

An attack by Islamist militants in Algeria's Sahara on the In Amenas gas plant--run by BP, Statoil ASA (STL.OS) and Algerian state oil company Sonatrach--left at least 37 foreign workers dead. The event highlighted a formidable new threat for oil companies investing in the region.

In an internal e-mail to staff, BP CEO Bob Dudley said "it is now clear that four of our colleagues in all likelihood lost their lives in the attack on the In Amenas joint venture." Over the weekend, he had said the company had feared "the worst" for them.

Using unusually harsh language, Mr. Dudley said the plant was "attacked by murderers on what should have been an ordinary working day. This was an appalling act of evil--a barbarous and pre-meditated criminal attack."

But he insisted BP would help governments investigate the tragedy as well as learn lessons to avoid it being repeated.

"Governments will also be conducting their enquiries. BP will participate fully and share what knowledge and insights we have," Mr. Dudley said. "We will ensure any lessons are applied to prevent such an outrage occurring again."

The e-mail also hinted that the tragedy could hurt staff morale.

"This has been a heavy blow for BP and I can imagine people across the company asking many questions," the CEO said in the e-mail. "I am very clear about where BP goes. We go on."

Copyright (c) 2012 Dow Jones & Company, Inc.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

View the original article here