Still Rezvan notes that even if 2012 liquidity risks hit the backburner, there's plenty of uncertainty in coming years on a poor outlook for natural gas prices. "We believe shares have bottomed, but do not see significant upside in shares unless gas prices continue to recover to $4/mcf or asset sale proceeds exceed expectations," adds Rezvan.
With shares recently sinking to their lowest value since the height of the financial crisis, it doesn't take heroism to make the case shares may have bottomed. All it requires is the company executing on the $10 billion in asset sales it has already promised. Yet since the company has already promised to raise this amount on multiple occasions, completing the sales might do little more than keep Chesapeake shares from sinking further, rather than result in a major share rally.
In addition, if Icahn's reported stake is being viewed as a sign of a coming activist push against a company that has become the market poster-child for flawed corporate governance, it's worth noting that Icahn's previous big stake in Chesapeake was anything but activism: Icahn was in and out without waging a proxy campaign. Chesapeake shares soared from the low $20s to as high as $35 after Icahn revealed his 5.8% stake in late 2010, and it's been straight down with Chesapeake shares since as the corporate governance situation worsened. If investors are looking to Icahn as a reason to consider a fast money, headline-driven catalyst for Chesapeake shares, it's a logical assumption that may not be helpful for long-term investors.
During the most current quarter, Chesapeake reported that the combination of high spending and reduced cash flow as a result of low natural gas prices required that it to increase long-term debt, net of unrestricted cash, by approximately $2.4 billion to $12.6 billion to fund spending, while cash available declined to $2.4 billion from $3.1 billion. Bloomberg calculates that Chesapeake has outspent cash flow in 19 of the past 21 years.For more on Carl Icahn, see his investment portfolio. For more on energy stocks, see the energy stocks bought and sold by hedge funds in the latest quarter. See 5 ways Chesapeake Energy can be saved from itself for more on how it can initiate a share turnaround. -- Written by Antoine Gara in New York
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