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Canaccord Genuity Energy Analyst John Gerdes is increasing his price target for Chesapeake Energy share due to minor model refinements. He believes Chesapeake’s year-end 2012 long-term debt goal is achievable. Chesapeake seeks to reduce long-term debt from $10.6 billion at year-end 2011 to no more $9.5 billion at year-end 2012. Given his cash flow estimate of $4.1 billion and drilling/leasehold capital spending estimates of $8.5/$1.4 billion, this would require $6.9 billion in asset monetization.
Chesapeake is targeting ~$2 billion from a Granite Wash VPP and a Cleveland/Tonkawa transaction, $6-8 billion in proceeds from Mississippian/Permian/other transactions and ~$2 billion from midstream, oil service and other divestitures. Notably, Gerdes believes the Permian Basin alone could garner $8+ billion assuming $3-4,000/acre for 1.5 million net acres and $100,000/Boepd for 33 Mboepd.
Chesapeake plans to reduce its gas rig count from 36 to 26 by early April and increase its liquids rig count from 125 to 131. Liquids output is forecast to surge ~60% exit/exit this year while gas production is expected to decline 6%.
With only seven wells on production, 35 waiting on completion/pipeline and Chesapeake planning to ramp activity to 20 rigs by year-end 2012, Gerdes expects further clarity on Utica Shale productivity during the year, which could be a meaningful catalyst for the stock. Operationally, he believes there is a misperception that Chesapeake has an inferior asset base. In contrast, his analysis suggests Chesapeake’s organic capital productivity (ex-joint venture carries) is ~20% superior to the sector though ~10% less weighted toward liquids.
Chesapeake Energy (CHK : NYSE : US$24.93), Net Change: -0.07, % Change: -0.28%, Volume: 15,892,559
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