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Carl Icahn Rumors Aren't a Reason to Buy Chesapeake Energy

Concerns about the company's ability to execute on asset sales in the near-term dominated the recent news flow alongside the CEO headlines. On May 11, Chesapeake disclosed in a 10-Q filing that asset sales could be delayed, and confirmed the following Monday that it wouldn't monetize its Eagle Ford shale assets this year in a planned $1 billion volumetric production payment.

Chesapeake also said an oilfield services IPO may be pushed out to 2013 instead of 2012, but reaffirmed its efforts to raise billions through the sale of its Permian assets and a joint venture in the Mississippian Lime.

"We have chosen to, at least temporarily, defer the sale of Eagle Ford VPP," said Chesapeake Energy CFO Nick Dell'Osso. "We do not expect to have covenant issues this year," he added. The company still expects to sell its Permian Basin and Missippian assets by the third quarter, but if those aren't completed by September, it might breach debt covenants.

" For year-end debt to not exceed $12bn (4x $3.0bn), then asset monetizations must reach at least $5.0bn," noted Citigroup analyst Robert Morris in a May 14 note to clients. "Without any asset sales, CHK would be non-compliant with its revolving bank credit facility at year end unless spending was cut sharply."

McClendon said during the conference call that the firm's biggest deals "remain on track." He also said that a $4 billion unsecured loan from its investment bankers Goldman Sachs (GS) and Jefferies (JEF) will give the company the financial flexibility to sell between $9.5 billion and $11 billion of non-core assets.

On Thursday, Chesapeake Energy said in a prospectus that it is selling oil and gas assets in Colorado and Wyoming, which the Wall Street Journal reports could fetch $1 billion, which could serve as a replacement to the delayed Eagle Ford VPP that had been expected to raise $1 billion.

As Chesapeake Energy's shares climb from 52-week lows hit earlier in May, some are taking the asset sale plans and bank funding as a signal that Chesapeake Energy shares have hit a floor. "We believe shares may have found a floor," wrote Sterne Agee analyst Timothy Rezvan in a May 23 note to clients. Much of Chesapeake Energy's $13 billion-plus debt load is unsecured by its oil and gas assets, giving the company flexibility, notes Rezvan.

"We believe Chesapeake has more flexibility to raise cash this year than many investors think. If asset sales do not proceed as planned, we believe Chesapeake could raise cash through secured debt, which would debunk the 'goose egg' theory for CHK's equity this year."

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