Tuesday, February 14, 2012

Chesapeake's Yard Sale

Bloomberg reported yesterday that Chesapeake Energy is looking at raising approximately $12 billion from asset sales and joint venture-type deals to "to cope with a cash crunch amid rising debt and tumbling gas prices."  The biggest potential asset on the block is the company's (oily) Permian Basin acreage.  Chesapeake will be completing an upfront payment deal in the Granite Wash and might negotiate other deals in the Cleveland and Tonkawa formations in Oklahoma.  Also for sale might be interests in the company's infrastructure, including pipelines, gas processing plants and services companies.

Like many operators, Chesapeake is in its usual position of outspending operating cash flow - analysts estimate that Chesapeake might fall $3 to $6 billion short.  It doesn't look like gas prices will rise any time soon to rescue the company and Chesapeake's oil production is not sufficient yet to support the business.  The company is over-leveraged, and selling more stock is unlikely, so it pretty much has to sell valuable assets to raise money.

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