Deutsche Bank is out positive on Chesapeake Energy (NYSE:CHK) after the co issued a press release containing a comprehensive new financial and operational strategy in response to turbulent financial markets and commodity price uncertainties. The key highlight is a cash neutral budget (i.e. reliant on neither asset sales nor equity issuance) that CHK expects to generate growth of 5-10% for 2009, and 10-15% in 2010 (down from 17% and 16%, at the midpoint of prior guidance).
Cuts 2009-10 capex by more than $6B (40%)
CHK is cutting its 2009 capital budget by $3.5 billion, or 43%, and its 2010 budget by $2.95B, or 35%. Meanwhile, asset sale plans remain unchanged ($450MM VPP#4 still anticipated by YE; $450MM VPP#5 and a midstream monetization slated for Q1-09), such that per guidance CHK expects to build up to $4B in additional cash resources over the next two years. Its cash flow profile seems reasonably visible given CHK's restructured hedging portfolio, under which about 76% of its 2009E production is hedged at a floor price of $8.20/Mcf, including only 12% of production subject to knockout hedges, which are largely concentrated in Q4-09.
Rethinks equity filings; conference call Monday AM
Finally, and likewise very importantly, CHK announced plans to terminate the recently announced Distribution Agreements, and will NOT in fact issue any shares under the S3; it is also reducing the shares to be registered under its acquisitions shelf (S4 filing) to 25MM shares from 50MM. Given recentlyacute concerns surrounding CHK's spending plans and liquidity profile, Deutsche believes the stock will react very favorably to these retrenchment moves; they will provide further thoughts and updated numbers following the company's conference call this morning at 9AM EDT (888-211-7383 / 1193464).
Notablecalls: I think $13.50-$14.50 levels are in play for CHK in the near-term.
Cuts 2009-10 capex by more than $6B (40%)
CHK is cutting its 2009 capital budget by $3.5 billion, or 43%, and its 2010 budget by $2.95B, or 35%. Meanwhile, asset sale plans remain unchanged ($450MM VPP#4 still anticipated by YE; $450MM VPP#5 and a midstream monetization slated for Q1-09), such that per guidance CHK expects to build up to $4B in additional cash resources over the next two years. Its cash flow profile seems reasonably visible given CHK's restructured hedging portfolio, under which about 76% of its 2009E production is hedged at a floor price of $8.20/Mcf, including only 12% of production subject to knockout hedges, which are largely concentrated in Q4-09.
Rethinks equity filings; conference call Monday AM
Finally, and likewise very importantly, CHK announced plans to terminate the recently announced Distribution Agreements, and will NOT in fact issue any shares under the S3; it is also reducing the shares to be registered under its acquisitions shelf (S4 filing) to 25MM shares from 50MM. Given recentlyacute concerns surrounding CHK's spending plans and liquidity profile, Deutsche believes the stock will react very favorably to these retrenchment moves; they will provide further thoughts and updated numbers following the company's conference call this morning at 9AM EDT (888-211-7383 / 1193464).
Notablecalls: I think $13.50-$14.50 levels are in play for CHK in the near-term.
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