Chesapeake Energy Corporation (NYSE:CHK) plans to raise over $4 billion this year by selling off assets and spinning off its oilfield services division. The second-largest U.S. natural gas producer believes the asset sale and spin-off would help it to lower debt by $3 billion; however, the cut in debt would come at the cost of a 2% decline in production.
Asset sales, spin-off announced
The spin off of the oilfield services unit known as Chesapeake Energy Corporation (NYSE:CHK) Oilfield Operating will help the company to lower its debt by about $1 billion. After completion of the spin-off, the oilfield services business will be known as Seven Seventy Energy. Also, the newly formed entity will be recapitalized and pay $400 million as a dividend to the parent company to satisfy the intra-company debts. The process including spin-off and recapitalization is expected to be concluded by June. For the shareholders, the deal is expected to be tax-free.
On Friday, Chesapeake Energy Corporation (NYSE:CHK) announced it will sell a few of its productive assets in Southwestern Oklahoma, East Texas and South Texas for around $310 million. Apart from this, the company also agreed to spin-off its southwest Pennsylvania and Wyoming assets for about $290 million. The company also plans to divest a subsidiary, CHK Cleveland Tonkawa.
Chesapeake trying to polish its balance sheet
For the current year, the U.S. O&G firm expects production to increase by 9%-12%, but in 2015, the growth rate could decline to 7%-10% due to asset sales. For 2015, the natural gas producer has fixed a capital budget of $5.5-$6.0 billion, which is more than the planned spending of the $5.0-$5.4 billion this year.
Chesapeake Energy Corporation (NYSE:CHK) has been making efforts to improve its balance sheet and reduce the high spending programs that were initiated by the co-founder and former CEO Aubrey McClendon, who was ousted last year following an investigation into his unusual compensation. McClendon, now runs American Energy Partners, which is based close to the Chesapeake headquarters.
Under the leadership of Doug Lawler, the company has been involved in a number of asset sales, and has raised around $925 million from the sales this year. Lawler replaced McClendon last June.
On Thursday, Chesapeake Energy Corporation (NYSE:CHK) shares closed down $28.99 on the New York Stock Exchange. The stock was up more than 44% last year.