Author: Waleed M. Tariq
- Chesapeake Energy emerged from bankruptcy in early 2021.
- CapEx and reinvestments will improve CHK’s income and FCF.
- Due to chapter 11 procedures, the stock is cheap but has growth potential.
- Post-bankruptcy corporation has low leverage and substantial liquidity.
- Chief’s acquisition will enhance cash flow by $50 to $70 million.
- Cheap valuation and growth possibilities make me bullish with a 35% upside.
- Potential investors are worried about the company’s debt after the bankruptcy.
- By 2021, the company had 8,200 wells. Portfolio is 85% natural gas, 15% liquids.
- After bankruptcy, creditors with impaired claims received $600 million in rights.
- The company operates in the Marcellus, Haynesville/Bossier, and Eagle Ford Shales.
- Chesapeake decreased their debt by $9.4 billion by granting creditors equity.
- In 2021, the company generated $2.145 billion in adjusted EBITDAX, reinvested $750 million, and had 0.83 net debt to EBITDAX.
- Over $903 million in cash and $1.7 billion in unused borrowing facility can cover upcoming CapEx, interest, acquisitions, and dividends.
Proved Undeveloped & Developed Reserves
- Chesapeake owns 661 mmboe for PUDs with $8.7 billion in future net revenue or $5.1 billion at present value.
- Chesapeake has 935 mmboe PDRs working at 98% capacity with $14.5 billion in future net revenue and $8.65 billion at present value.
- Average industry target price is $83.45 with $10.81 FCF, up 5.1%. Forward FCF forecasts $131.24 per share, up 65%. FCF’s $107.35 price target is up 35%.
- With the Chief purchase finalized and CapEx correctly deployed, the company is likely to achieve its cash flow expectations. This boosts stock valuation and shareholder rewards.