This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Seventy Seven Spinoff Could Have Chesapeake's Investors Gushing

Stocks in this article: CHKSLBHALBHI



Chesapeake carries a lot of debt. By the end of 2013, Chesapeake's total debt, excluding unrestricted cash, dropped slightly to $12.05 billion from $12.33 billion a year ago. On the other hand, the company's cash reserves increased to $873 million by the end of 2013 from $287 million in the prior year.

Chesapeake has been selling its assets to shore up its balance sheet. So far this year, Chesapeake has received $209 million from the sale of its interest in Chaparral Energy and will receive an additional $150 million from asset sales held in the prior years. Overall, the company has forecast that it will receive $1 billion from divestitures in 2014. This will help the company in filling its $1 billion funding gap.

The spinoff will also help Chesapeake in its capital expense reduction drive once the oilfield services unit starts operating as a separate and independent company.

For the current year, Chesapeake will spend between $5.2 billion and $5.6 billion as capital expenditures, more than 90% of which will flow towards exploration and production projects. The current capital expenditure shows a significant decline from $6.7 billion in 2013 and $13.4 billion in 2012.

In these tough times, the spinoff could also support Chesapeake's balance sheet if it results in an inflow of cash. On the other hand, an outright sale of the unit could cause a massive cash infusion of more than $2 billion.

According to Jefferies, Seventy Seven will be valued at $2.5 billion. This would imply the company is valued at 1.13 times its trailing sales. The three biggest oilfield services firms, Schlumberger (SLB), Halliburton (HAL) and Baker Hughes (BHI) are valued at an average of 1.87 times their trailing sales. At this multiple, Seventy Seven could be valued at $4.12 billion.

On the other hand, in 2011, Chesapeake's co-founder and former head Aubrey McClendon valued the unit at between $5 billion and $7 billion.

Once the oilfield services unit is spun off, Chesapeake shareholders will receive a single share of Seventy Seven for an unspecified number of Chesapeake's shares.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,461.32 -153.49 -0.92%
S&P 500 1,927.11 -14.17 -0.73%
NASDAQ 4,382.8470 -36.6310 -0.83%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs