Utica Shale Crucial Factor in Chesapeake Energy's Future
A natural gas glut in the U.S. leading to a drastic fall in prices has embroiled Chesapeake Energyinto a difficult financial position. It’s been in a hurry to sell off assets to meet its funding shortfall, which is estimated to be at $22 billion.
Chesapeake is considering selling off several of its fully or partially-owned midstream businesses alongside some gas and oil fields. It recently completed a $2 billion deal give up its 46% stake in its affiliate Chesapeake Midstream Partners – a gas, NGL and oil gathering company.
We have aTrefis price estimate of $19 for Chesapeake,which is in line with the current market price.Chesapeake’s core business was natural gas exploration, but management is considerably shifting focus to a balanced mix of dry gas and liquids production to support sustainability of cash flows in future.
The move towards more of NGL and oil is reasonable as oil is an indispensable commodity, at least in the near future, in contrast to dry gas, which continues to be vulnerable as gas and coal jeopardize each other intermittently. Hence, there is a gold rush for reserves likely to hold more of oil than gas or NGL. In January, 2012, the French company Total agreed to partner Chesapeake in Utica Shale reserves JV with a $2.3 Billion investment.