Essay About Gas E&P And 2013A242 2014E246 2015E267Net Realizations

Chesapeake Energy Case Study
[pic 1][pic 2][pic 3]TickersCHK/ SSESectorOil & Gas E&P / Oilfield Svcs.CountryUSAPrimary stock exchangeNYSEClosing Price ($)26.17/23.74Market Cap.( $bn)17.5/ 1.1Fair value per share($)CHK~31SSE~27CHESAPEAKE ENERGYProduction (mmboe) 2013a242 2014e246 2015e267Net Realizations ($/boe, ex. Derivative gains and losses) 2013a28.67 2014e29.22 2015e33.01Normalized FCFF ($ millions)  2013a1,843  2014e1,421  2015e2,609PF Net Debt (2014E, $mn)12,203SEVENTY SEVEN ENERGYRevenue ($ millions)  1H 2014a957  2014e1,965  2015e2,235Adj. EBITDA ($ millions)  1H 2014a206  2014e485  2015e589Adj. EBITDA (%)  1H 2014a21.6  2014e24.7  2015e26.4PF Net Debt ($mn)1,564On June 30, 2014, Oklahoma City-based oil and natural gas producer Chesapeake Energy (NYSE: CHK) spun-off its oilfield services business into an independent entity Seventy Seven Energy Inc. (NYSE: SSE) through a tax-free distribution of one share of SSE common stock for every 14 shares of CHK common stock, in return for SSE taking over ~$1.5 billion of CHK debt. In our view, spin-off, together with certain other transactions involving non-core asset divestitures and “oily” acreage acquisition, positions CHK as a relatively more efficient firm that is poised to improve its production mix toward relatively high-value liquids, creating prospects for value creation. Concerning SSE, the spin-off is likely to enhance its ability to invest in fleet expansion/upgrade and third-party customer acquisition, which should help drive revenue growth and margin improvement. Recommend a Buy on both CHK and SSE.