Chesapeake Energy Corporation (NYSE:CHK) has completed the divestment of 100% of its ownership interest in Chaparral Energy, Inc. The deal closed for gross proceeds of $215 million. This sale is compatible with the company’s current focus of refinement and building up a portfolio around core assets.
Chesapeake – an independent oil and gas company – registered higher production on lower operating costs from its underlying assets during the third quarter.
Heavy investments in the development of Chesapeake’s liquids-rich holdings in the Eagle Ford Shale, Granite Wash and Mississippi Lime are lined up. Most importantly, the company’s efforts to produce desirable results are reflected by an almost 22% year-over-year increase in oil production during the third quarter.
As the company shifts its focus to more liquid-rich plays, it expects natural gas production to fall in 2013, while liquids production is expected to increase approximately 28–34% year over year.
Chesapeake expects 2013 total production in the band of 1,440–1,468 billion cubic feet equivalent (Bcfe). Natural gas is expected to contribute 1,080–1,090 billion cubic feet to the total production. Oil production forecast has been increased to 40–42 million barrels/MMBbls from 38–40 MMBbls projected previously, and NGL will likely be in the 20–21 MMBbls range.
Chesapeake is on track with its plan of reducing long-term debt by monetizing its assets and cutting lease-hold spending. This monetization initiative is mainly aimed at coping with the mounting debt level as well as filling the funding gap for its 2014 expenditures that resulted from volatile natural gas prices.
However, Chesapeake’s results are particularly vulnerable to fluctuations in the natural gas market, since natural gas accounted for about three-fourth of Chesapeake’s first nine months of 2013 production.
Chesapeake currently holds a Zacks Rank #3 (Hold), implying that it will perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can consider better-ranked players in the oil and gas sector like Seadrill Partners LLC (SDLP), Ocean Rig UDW Inc. (ORIG) and Helmerich & Payne Inc. (HP). Seadrill Partners sports a Zacks Rank #1 (Strong Buy), while Ocean Rig and Helmerich & Payne carry a Zacks Rank #2 (Buy).