Chesapeake Energy Corporation’s CHK Analyst Day highlighted improvements from efficiency gains and bigger completions, Ladenburg Thalmann’s Michael C. Schmitz said in a report. He maintained a Neutral rating on the company, with a price target of $6.
4-Prong Strategy
Analyst Schmitz noted that Chesapeake’s four prong strategy focused on:
- Financial discipline: The company has lowered debt by 50 percent, and plans to reduce debt by an additional $2.0-$3.0 billion
- Business development: The company continues to target over $2.0 billion in asset sales in 2016, having closed $1.3 billion to date
- Exploration: “11 new basin-entry plays, 15 growth opportunities in CHK-operated basins and 17 prospects adding value to current HBP position with the belief that "organic" exploration growth delivers the highest long-term value,” Schmitz wrote.
- Profitable and efficient growth: The company had ~10,500 potential drilling locations, which could generate an estimated Rate of Return [ROR] of more than 20 percent, including ~5,600 potential locations that could potentially generate an ROR of over 40 percent at $60 per barrel or $3.00 per MMBtu (1 Million British Thermal Units]
“CHK reiterated that it is targeting 5.0-15% annual production growth through 2020 (including estimated 10-15% growth in 2018) with goals of achieving cash flow neutrality by 2018 and a net debt/EBITDA ratio of ~2.0x by year-end 2020,” the analyst mentioned.
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