Barclays Lifts PT on Chesapeake Energy (CHK) to $3; Sees Cash Flow Improving Post-Barnett Exit
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Barclays boosts its price target on Underweight-rated Chesapeake Energy (NYSE: CHK) from $1 to $3 following recent company progress in midstream contracts and Barnett Shale play.
Analyst Thomas Driscoll commented today,
Chesapeake has improved its economics by addressing above-market midstream contracts in several regions and by exiting the Barnett. We are increasing 2018 EBITDA estimates (or PICF) by $635 million to reflect the recently announced Barnett transaction, the Mid-Continent midstream restructuring, and continued efficiency gains evident in CHK's new guidance. We assume Chesapeake shares will trade at a 5% discount to peers using 2018 cash flows and we have valued the debt at face value to arrive at a price target of $3 per share.
CHK will pay to exit the Barnett Shale play - but cash flow will improve. The $336 million payment to exit the Barnett and cancel midstream contracts will relieve CHK of substantial obligations and sharply boost near-term cash flow. The Barnett transaction raises pro-forma YE 2015 PV10 value by $550 million.
A $0.5-1 billion Haynesville sale could help CHK to reach its $2-billion plus asset sales target; and another package is likely to go to market his month. CHK has sold $1.2 billion in assets and the Haynesville could help it attain total proceeds of $2 billion or more. CHK is marketing production of 90-95 mmcfpd plus an undisclosed amount of acreage. Recent drilling results have been impressive and they have raised the value of undrilled opportunity, the analyst noted.
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