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$7 Billion in Chesapeake Energy Deals Reshape Bull-Bear Divide

Written by: Antoine Gara 09/12/12 - 1:57 PM EDT
Tickers in this article: JEF RDS.A GS CHK CVX

(Updated to reflect Argus Research analyst comment on deal value)

NEW YORK (TheStreet) -- Chesapeake Energy (CHK) has just cleared the biggest hurdle it faced in 2012, selling $6.9 billion in oil and gas drilling, leasehold, pipeline and terminal assets that it's deemed as "non-core," as oil giants like Royal Dutch Shell (RDS.A) and Chevron (CVX) push further into promising shale basins.

"The deal is a clear positive," says Sterne Agree analyst Tim Rezvan, adding that buyers as large as Shell and Chevron indicate there is a lot of interest in assets held within Chesapeake Energy's portfolio, which could help future capital or liquidity needs. "It weakens any near term bear case on cash flow or liquidity," Rezvan added.

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So why aren't Chesapeake shares signalling an all-clear on Wednesday?

One down, one to go: With the near-term bear case on the company's cash crunch quieted, Chesapeake now has major 2013 hurdles to jump over.

Operational momentum and third quarter asset sales should support Chesapeake's stock, but investors will be looking for a detailed picture from upcoming third quarter earnings about 2013 leverage, spending and production plans, according to a late August analysis by Rezvan. That tension is highlighted in today's asset sales. Selling the Permian assets helps solve Chesapeake's short-term cash needs but muddies its production picture, taking away almost 6% of the company's total production.

A string of deals announced on Wednesday, in addition to previous asset sales, signal that the embattled Oklahoma City-based driller is moving closer to plugging a $14 billion financial gap this year. In total, Chesapeake Energy has announced $11.6 billion in asset sales this year, making the full-year goal of $13 billion-to-$14 billion in asset sales 85% complete, the company said in a statement.

Crucially, Wednesday's asset sales will allow Chesapeake Energy to repay a $4 billion loan provided to it by the firm's investment bankers, Goldman Sachs(GS) and Jefferies(JEF) , as its cash needs escalated earlier in the year.