Chesapeake Energy Corporation


Chesapeake Energy Corporation (NYSE:CHK) has faced some troubles this year and the tail end of last year.  Questionable accounting practices, misreported liabilities, CEO’s scandal, etc have all plagued Chesapeake and it looks as though there is no end in sight.  That being said, Chesapeake has a solid business structure and holds some of the best oil and natural gas assets in the world.

However, the main concern that currently is hitting Chesapeake right now is the lack of cash flow and rising deficits.  The low energy prices of crude oil and natural gas have forced Chesapeake to sell off some of its assets to cover its debt payments in the meantime while a more reasonable solution is thought of.

As the share price has tumbled 44% this year, Chesapeake is setting itself up as a candidate for an activist investor to step in.  Interestingly enough, if you take a look at the big hedge funds’ holdings of Chesapeake, you will see that Carl Icahn has been slowly building up a stake since 2010.  There is no clear indication that Icahn is looking to take over Chesapeake but certainly it has the financial world talking right now.

Some say that Carl Icahn will end up taking the firm over and trying to sell it to Chevron Corporation (NYSE:CVX) who has very weak shale exposure in its portfolio, making Chevron a very possible buyer. Other buyers include TOTAL S.A. (ADR) (NYSE:TOT) and BP plc (ADR) (NYSE:BP) who are looking to build up their American oil shale stakes.

Chesapeake is definitely going to be slimming itself this year as it looks to cut its stake in the profitable, Permian Basin as well as the Mississippi Lime oilfield, etc.  The problem with some of its assets that they are selling is that they require more capital to fully get the fields in operation which could be a financial strain to some companies that aren’t flush with cash.

Ultimately, once Chesapeake sells off its assets, it will be a smaller company that will be easier for a company like Chevron or an investor such as Icahn to takeover and what it will with it.  Unfortunately, the recent events that have come out of the company’s board room have not given investors any confidence and that will cost them.  The lack of shareholder support will certainly help pave the way for Chesapeake Energy to be taken over in some fashion.