Chesapeake Energy Fights the Good Fight

Oil hit an eight-month low in Asia, keeping consistent in its recent jumpy behavior that tends to mirror news coming out of Europe. This comes down from crude oil’s up position June 11 after a European pledge that the euro zone countries would lend Spain $125B to alleviate the pain in its struggling banks. This, combined with talk about how investors have been looking into commodities as a safe place to park their capital as they wait out this passing economic storm, made me want to take a closer look at what’s going on in energy today.

Right now, Chesapeake Energy, the world’s second largest natural gas company, is a pretty entertaining case to follow. For anyone who hasn’t been doing so, the Chesapeake story started picking up June 4 as their stock saw a sudden turnaround rising 6.03 percent to $16.52 a share (previously on a longtime downward spiral as their stock had dwindled around 55 percent from its peak performance). At that time, I couldn’t help but wonder what kind of an investment this company could potentially turn into.

The change was a direct result of some democratic cuts that took place amongst the company’s board of directors. It was actually billionaire Carl Icahn, with his sturdy 7.56-percent stake in the natural gas conglomerate, who set things in motion.

In a letter he wrote to the company last month, Icahn spoke on behalf of himself and a group of disgruntled fellow Chesapeake investors voicing dismay with how the board was operating the company. In it, he expressed that he felt it was these board members who were largely responsible for the dismal Chesapeake stock performance.

On June 11, the company responded to Icahn by announcing that they planned to remove four of their nine current board members. This seemed to be just the antidote investors were looking for, as many of them openly expressed their satisfaction with the decision.

Though the company’s June 11 stock performance demonstrated Chesapeake was starting to regain traction with investors, they were and are still nowhere near a comfortable monetary state. With $12.6 billion in long-term debt, they are looking to disperse $14 billion in assets in an attempt to alleviate their weighty debt burden.

On June 8, Chesapeake announced at an annual meeting that it would be selling its Midstream Partners pipelines and Chesapeake Midstream Development to Global Infrastructure Partners June 26 for a combined $4 billion dollars. This move came at a prime time, as the company is clearly strapped for cash under their hefty debt.

The question now is, given the mitigating circumstances with both the company and the global economy, how should investors approach the wounded (but slowly recovering) beast that is Chesapeake Energy? Engage in buying off their debt via corporate bonds? Bank on materialization of a positive rebranding turnaround as Carl Icahn takes matters into his own hands? Consider commodities as a safe place to stash their dough until European turmoil cools off? Decisions, decisions.

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