7 Reasons to Be Cautious on Chesapeake Energy's Plan

NEW YORK (TheStreet) -- Chesapeake Energy (CHK) CEO Aubrey McClendon never misses an opportunity to talk up his own shares, and why would he: he's successful at it.

Every time Chesapeake seems to be the weakest player at the table -- lately it's because the company's funding gap seems dire with the low natural gas prices -- its CEO hatches a plan to prove that the company is really holding the best hand. And it works.

Case in point: On Monday, Chesapeake announced a plan to monetize $10 billion to $12 billion in assets. This is classic Chesapeake stuff -- announce a bold plan to recognize tons of cash across all of its assets just when the market thinks it may not be able to match its debt with expected cash flow. In the Chesapeake case, the self-valuation of assets always comes before the actual deals, too.

More ambitious plans from Chesapeake Energy to monetize assets leads to bullish trading, but also concerns about its levered balance sheet.

Chesapeake shares raced ahead by 7% early on Monday but two hours into trading that spike had come in, and shares were up only a little more than the energy sector gained on a bullish day of trading. Maybe it was the shorts who covered early.

There are some reasons to be optimistic for fans of Chesapeake Energy. For one, even though Chesapeake has again valued its own assets before even finding a buyer for them, the company does have a good track record of completing deals, like its recent Utica joint venture with Total (TOT), where it ultimately received a value per acre (roughly $15,000) which merited the company talking up the JV even before it was completed.

However, there are plenty of reasons to be skeptical about Chesapeake's latest bold stroke. Here are seven of them.

1. This is just one more trading event for Chesapeake Energy

Keep in mind that 2012 began with Chesapeake shares racing ahead when it announced the Total joint venture. It was odd, as the company had announced the joint venture before the joint venture was done and then still rallied on re-announcing it. The bottom line, though, is that Chesapeake shares went right back down again to pre-Utica deal level by the close last Friday, and this Monday rebound might just be one more short-term move in shares.

Skepticism remains high on Wall Street, as RBC Capital Markets analyst Scott Hanold noted on Monday morning, writing, "There will likely be some skepticism given managements' track record of past over-spending. We expect CHK shares to trade higher on the new plan but sustained outperformance will require the company to adhere to this plan."

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