CHESAPEAKE ENERGY $29.23 (New York symbol CHK; TSINetwork Rating: Extra Risk) (405-848-8000; www.chkenergy.com; Shares outstanding: 666.2 million; Market cap: $20.0 billion; Dividend yield: 1.2%) is one of the largest U.S.-based oil and natural gas explorers and producers. Its production mix is 84% gas and 16% oil.
Chesapeake’s shares have nearly doubled since mid-2012, when activist investor Carl Icahn acquired a stake in the firm. Icahn, who has a history of pushing companies to make changes that raise shareholder value, subsequently replaced four of Chesapeake’s eight board members with his nominees. The company also pushed out controversial co-founder, CEO and chairman Aubrey K. McClendon.
As part of its restructuring, Chesapeake sold $4 billion worth of properties in 2013, which let it pay down debt and focus on areas with strong growth potential. It has also cut its costs and is now aiming for a better balance between oil and gas production.
In addition, Chesapeake plans to spin off its oilfield services division into a separate publicly traded company called Seventy Seven Energy. This will let it take advantage of strong investor interest in oil and gas drilling and servicing stocks.
Chesapeake’s daily production averaged 675,200 barrels of oil equivalent in the quarter ended March 31, 2014, up 11.0% from 608,100 a year ago. Cash flow per share rose 35.4%, to $2.45 from $1.81, on the higher production and increased natural gas prices.
The company’s $12.7 billion of debt is a high, but manageable, 63.5% of its market cap. It holds cash of $1.0 billion, or $1.50 a share. The stock trades at just 3.0 times Chesapeake’s annual cash flow of $9.80 a share, based on the latest quarter.
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