Chesapeake Energy Corp., the second-largest US natural gas producer, has announced plans for a possible spinoff of its oilfield services unit to unload some $1 billion in debt and simplify the company’s corporate structure.
The announcement of the spin-off comes less than a month after Oklahoma City-based Chesapeake make it known it was considering multiple options, including the sale of its oilfield services, as it seeks to cut costs and repair its balance sheet.
Chesapeake would not retain any ownership interest in the spin-off, which will be incorporated under the name of Seventy Seven Energy Inc.
The company’s oilfield services unit, Chesapeake Oilfield, provides equipment to US onshore exploration and production companies and offers drilling, hydraulic fracturing, oilfield rentals, rig relocation and other services to the industry. The unit reported revenue of around $2.2 billion for 2013.
On Monday, 17 March, when Chesapeake filed the paperwork for the spinoff with the Securities and Exchange Commission (SEC), its stocks fell 0.6% to $24.88. Analysts seem largely optimistic, however, that the spin-off will give the company greater visibility and higher market valuation, while allowing for better streamlining.
Chesapeake has experienced a turnaround over the past year, credited to its new CEO, Doug Lawler, formerly of Anadarko Petroleum Corporation. Lawler replaced Aubrey McClendon who stepped down in January last year, mired in a financial scandal that had unsettled investors.
Stock prices were down and investors were revolting. McClendon actually co-founded the company, but investors didn’t like his track record. Shareholders weren’t fond of McClendon’s management missteps and the company’s stagnating performance. In addition, McClendon had gone on an asset binge, gobbling up US shale basins. But the massive debt he amassed did no favors to Chesapeake. In 2008 we saw the worst of this start to hit when gas prices collapsed and the company was left with tons of assets that they couldn’t develop.
By Charles Kennedy of Oilprice.com