Analyst: Numbers Are Catching Up With Chesapeake Energy

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From Seeking Alpha:
Chesapeake Energy Corp. (CHK) is a large US oil and gas acquisition, exploration, development and production company. It started as primarily a natural gas E & P company. It bet heavily on the natural gas industry. When the bottom fell out of the natural gas market, a seriously in debt CHK had to change its strategy to emphasize oil development. Aubrey McClendon et al came up with the strategy of buying huge leaseholdings in new unconventional oil fields early. CHK would then do a small amount of development to prove the new field was an economic success. Then CHK would sell a part of its interest in the field to pay for the entire cost of all of CHK's leases on the field plus some development costs. This strategy has been a great success, and it is probably the only thing that kept CHK out of bankruptcy when natural gas prices fell to historical lows (less than $2 per MMBtu) in Q2 2012. Even so, CHK needed emergency loans to see it through that time.
As part of this strategy CHK was the discoverer of the Haynesville, Utica, Powder River Niobrara, Tonkawa, and Mississippi Lime. It was one of the early developers in many more fields. This has made the CHK strategy work. It has allowed CHK to retain 15.1 million net acres of leaseholdings, while still selling or agreeing to sell approximately $12B in leaseholdings in FY2012 (and many more billions in the preceding years). Some have tried to say that CHK has been failing by selling off parts or all of its holdings in great fields. However, the opposite is true.
At the end of 2012, CHK claimed it had $4B in liquidity. Soon those $12B in 2012 deals will be completed. Plus CHK plans to sell another $5B-$7B in 2013. CHK asserts that these last sales should finally put it below $9.5B in debt by the end of 2013. At that point CHK will likely have more than $5B per year in operating cash flow. That sounds like a company that deserves an investment grade bond rating. Such a rating will be a huge acknowledgement of success for CHK. CHK should achieve that milestone by the end of 2013 (or shortly after it reports year end results for FY2013).
Read the whole article here. 

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