Chesapeake Looks to Lower Debt, Ride Growth

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis) -- Chesapeake Energy's ( CHK) heavy reliance on natural gas is weighing on the sentiment surrounding the investment case for this stock. This impression is further supported by the fact that Chesapeake derives nearly 75% of its Trefis price estimate from natural gas production. Moreover, the company is also bothered by its voluminous debt burden of $10.3 billion.

Other than natural gas, Chesapeake also operates in oil production, oil and natural gas marketing, natural gas compression, rig drilling and trucking, which form the rest 25% of the stock price. Its key competitors include Cimarex Energy ( XEC) and Linn Energy ( LINE) among others.

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See our full analysis for Chesapeake Energy.)

Chesapeake is increasing its focus on export markets like Asia where the natural gas prices are higher. The company is focusing on increasing oil and natural gas production significantly by 2015 and also spent huge sums of money to lift natural-gas accessibility in comparison with diesel and gasoline in the U.S. transportation sector. Let's look at how the stock price may be affected if higher natural gas prices from the export markets can raise the overall natural gas realization for Chesapeake.

Concurrently, the company is constrained by its high debt level and management has mentioned that it would like to reduce this by around $2 billion. Asia could be one suitor for asset sales given its long-term energy needs. In fact, Chesapeake CEO McClendon has been in talks with a variety of investors from India to Korea.

Despite the current depressed outlook for natural gas producers, we believe long-term value exists as implied by our price estimate. In addition to growing energy needs in developing markets, the market is undergoing a shift toward cleaner fuels like natural gas from coal.

Carbon emission from natural gas is lower than alternative fuels and is widely considered the fuel for the next generation. We expect that the downstream companies, especially utility companies, will shift toward natural gas and so the natural gas prices should recover on account of enhanced demand in future. Hence, Chesapeake is well positioned for this future demand given its major operations in natural gas.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.