Chesapeake Energy
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Does the recent sharp decline in Chesapeake Energy’s share price represent an attractive entry point? The CEO has purchased shares of this company. Should one follow suit?
Does the recent sharp decline in Chesapeake Energy’s share price represent an attractive entry point? The CEO has purchased shares of this company. Should one follow suit?
While the surge in oil prices has been bad news for most stocks, the case is quite the opposite for energy companies. The recent sharp decline in crude oil prices and the consequent downturn in natural gas prices have exerted significant pressure on energy stocks. Take for instance Chesapeake Energy Corporation (NYSE: CHK). Shares of this oil and natural gas exploration and production company tumbled more than 6% on July 17 on news of oil prices heading south. Does that create a good buying opportunity?
Oklahoma-based Chesapeake Energy is engaged in the acquisition, exploration and development of properties for the production of crude oil and natural gas from underground reservoirs. The company’s strategy has revolved around the acquisition of leading-acreage positions across key resource plays, including the Barnett Shale (where it is the second-largest producer), the Fayetteville Shale (where it is the second-largest leaseholder) and the Marcellus Shale (where it is the largest leaseholder). On March 24, Chesapeake Energy unveiled its interest in the Haynesville Shale, saying that the initial production results from the first three horizontal wells at the play had been extremely encouraging. The company went on to add that the Haynesville Shale “could potentially have a larger impact on the company than any other play in which we have participated to date.”
Chesapeake Energy has reported a net loss of $143 million for the first quarter. However, what is interesting to note is that its production jumped 31% to 2.2 billion cubic feet equivalent per day. The company has aggressive growth plans. In fact, the company has taken on billions of dollars in debt and issued substantial equity to fund its growth trajectory. Having done that, the company announced earlier this week that it intends to fund its exploration plans for the next couple of years via asset sale. Promptly, the company inked an agreement with BP Plc to sell 90,000 acres of natural gas properties in Oklahoma for $1.75 billion in cash. The company’s chief executive Aubrey K McClendon said, “This transaction completes another aspect of our asset monetization program and enables Chesapeake to redeploy capital to our Haynesville, Barnett and Marcellus Shale plays and further improves the company’s capital structure.”
McClendon’s belief in the company’s prospects extends beyond these statements. The CEO has recently upped his stake in the company by 2.29%, or by 750,000 shares, to 33.45 million shares. While this insider buying is an encouraging sign, it is even more encouraging that the stake was purchased at $57.25 per share. The company’s shares had jumped to a 52-week high of $74 on July 2. Although shares are currently trading significantly short of this, they have been rising steeply since the beginning of this year and the company’s share price is substantially higher than what it was in January.
Alternatio Cirqui, EconomyWatch.com Energy Correspondent
