Tuesday, October 5, 2010

Ticonderoga Maintains "Neutral" on Chesapeake (NYSE:CHK)

Chesapeake Energy (NYSE:CHK) has a "Neutral" maintained on them by Ticonderoga Securities, citing the huge volumetric production payment with Barclays (NYSE:BCS).

"Chesapeake today announced a 5-year volumetric production payment with Barclay’s Bank PLC, for $1.15B. The transaction covers 390 Bcf of proved reserves in the Barnett Shale, which equates to $2.95/Mcf. This should not be a surprise to the market, since this is the 8th VPP deal in 3 years...The short-term comparables are favorable, but the long-term outlook is bearish...We are concerned that CHK’s pursuit for unconventional oil assets will be a repeat of the factors that led to the stock’s under-performance during its natural gas land grab (high debt, rapid increase in shares, high finding cost)," said the Toconderoga analyst.

Although Chesapeake said they're going to use the capital to pay down debt related to a revolving credit facility, VPP are considered debt themselves by rating agencies.

No comments:

Post a Comment