Chesapeake Energy (ticker: CHK), the second largest producer of natural gas in the United States, altered its financial strategy via a company news release on July 21, 2015. The announcement included a handful of cash-saving moves, ranging from internal budget decisions to outright divestures. The initiatives are listed below.
- CHK will not issue a dividend for its common shares in the third quarter and will instead invest the cash into its 2016 capital program. CHK says the $0.35 per share annual dividend will save the company approximately $60 million per quarter or $240 million on an annual basis.
- The natural gas heavyweight will also divest a subsidiary to FourPoint Energy, LLC and redeem its preferred shares. Upon closing, CHK eliminates the 3.75% overriding interest in the properties and cuts annual preferred dividend payments, saving an additional $75 million per year.
- CHK will sell an additional $90 million worth of non-core assets to FourPoint. The assets, located in Oklahoma, contributed 15 MBOEPD (2% overall) to CHK volumes in Q2’15.
The moves mark another step in streamlining a business that has been in the process of right-sizing for the last few years. Doug Lawler, CEO of Chesapeake, noted the company had more than $2 billion of unrestricted cash and an undrawn revolving credit facility of $4 billion prior to the dividend cut.
The company is scheduled to release its Q2’15 operating results on August 5, 2015.
Capital One Securities called the move “prudent” given the recent stress on energy stocks as a whole. “The stock was yielding ~3.4%, but we don’t think CHK’s investors have been in the stock for its yield,” said a note from the firm. The latest sale is Chesapeake’s first such action of 2015, a far cry from the several measures taken in 2014, when the E&P divested approximately $8 billion of its assets through sales and spin-offs.
The company plans on spending $3.5 to $4.0 billion in its 2015 capital plan, a $0.5 billion reduction from initial plans made in March.
Source: CHK June 2015 Presentation
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