Chesapeake Energy (CHK) shares slid nearly 5% to $4.72 in opening trading Thursday on the heels of an RBC Capital downgrade to Underperform from Sector Perform, largely based on concerns over $2.2 billion in looming debt maturities.
The analysts also noted that Chesapeake has another $1 billion in debt coming due in 2019 and again in 2020, so much-needed free cash flow could be scarce over that two-year period. Chesapeake carries more than $10 billion in total debt, and has posted a roughly $450 million net loss over the past 12 months.
RBC also said that Chesapeake's management is likely to "continue to aggressively pursue transactions similar to what has occurred over the last few months" and asset sales will be of "low EBITDA contribution." (EBITDA is a standard valuation metric, especially concerning a company's ability to generate free cash flow, and stands for earnings before interest, taxes depreciation, and amortization.)
Chesapeake closed a $385 million sale of oil and gas assets this month, tied to the Western Anadarko basin, to FourPoint Energy. But the RBC analysts suggested that Chesapeake would be better off selling more of its acreage to shore up cash, pointing to the 42,000 acres in Kingfisher, Blaine, Dewey and Canadian counties recently sold for $470 million.
"Importantly, the acreage was mostly undeveloped and does not decrease current cash flow but reduces future spending," the analysts said.
Shares of Chesapeake, which are up about 4% on the year, along with rising oil prices, were also hit by a decline in crude prices Thursday morning. Prices of U.S. benchmark West Texas Intermediate fell about 1.8% to $50.33 a barrel.
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