Chesapeake Energy Corporation (NYSE:CHK) may be attempting a major comeback, but so far, BMO Capital analysts aren’t impressed. They note that even though the company has replaced its top management, it still has the same assets in its portfolio. They adjusted their projections after Chesapeake announced plans to sink more cash in its Haynesville asset.

Chesapeake Energy

Chesapeake deals with tired portfolio

Analysts Dan McSpirit and A.J. Donnell continue to rate Chesapeake Energy Corporation (NYSE:CHK) as Market Perform. They think it’s difficult to believe that Chesapeake’s decision to put more cash in the Haynesville asset is an “economic” and not “grounded in fulfilling certain contractual obligations.” In their view, they see lower than 20% internal rate of return on it.

In fact, they believe the same could be said of the other assets in Chesapeake Energy Corporation (NYSE:CHK)’s portfolio as well. They’re modeling a “large cash flow outspend that doesn’t go away any time soon.

Chesapeake Energy estimates revised downward

The BMO Capital team has rearranged the production mix and growth profile for Chesapeake Energy Corporation (NYSE:CHK) starting this year and going forward, increasing the amount of natural gas produced by reducing the amount of crude oil produced. They’re estimating about $730 million in cash flow outspending this year, plus about $400 million in capitalized interest.

They don’t believe Chesapeake Energy Corporation (NYSE:CHK)’s assets on their own are able to generate sufficient returns to enable it to “drill itself out from underneath the debt load.” They note that this is probably why the energy company has been selling assets and thinking about selling more assets. The BMO team thinks Chesapeake Energy must shrink in order to grow or survive, but unfortunately, they say this is especially difficult for the company because it must do it “with what could be deemed at best marginally economic assets remaining in the portfolio.”

Chesapeake Energy must get cheaper

The BMO team said in order for them to become more interested in Chesapeake Energy Corporation (NYSE:CHK), its share price mush come down quite a bit. They prefer Southwestern Energy Company (NYSE:SWN) over Chesapeake Energy because of its exposure to natural gas.