Fitch Affirms Chesapeake Energy's LT IDR at 'BB-'; Outlook Stable

  Fitch Affirms Chesapeake Energy's LT IDR at 'BB-'; Outlook Stable

Business Wire

NEW YORK -- May 17, 2013

Fitch Ratings has affirmed the Long-term Issuer Default Rating (LT IDR) and
senior unsecured ratings for Chesapeake Energy Corporation (Chesapeake). In
addition, Fitch has affirmed the ratings on the company's secured credit
facility and its preferred stock. Approximately $16 billion in rated
securities is affected by this rating action. A full list of ratings is at the
end of this release. The Rating Outlook has been revised to Stable from
Negative.

KEY RATING DRIVERS

Chesapeake's ratings reflect a very large asset base and production profile
coupled with relatively high adjusted leverage for a firm its size. The
company is second largest natural gas producer in the U.S., accounting for
approximately 4% of total production, and the 11th largest producer of oil and
natural gas liquids in the U.S. Proved reserves at the end of 2012 totaled 2.6
billion boe and production in first quarter 2013 (1Q'13) was 666,600 boe/d
split approximately 76% natural gas, 16% crude oil and 8% natural gas liquids
(NGLs). Total balance sheet debt at the end of the first quarter was
approximately $13.5 billion, which translated to an LTM unadjusted debt/EBITDA
of approximately 3.6x.

While balance sheet debt was approximately $13.5 billion at the end of March,
Fitch makes adjustments, such as adding minority interests, Volumetric
Production Payment obligations, asset retirement obligations, other long-term
obligations, etc. After these adjustments are made, adjusted debt is
approximately $18.8 billion. After preferred stock of $3 billion the figure
rises to over $21 billion. As a result, adjusted debt/Proved Developed was
$11.76/PD at the end of 2012 and adjusted debt/daily production was
approximately $27,000/boe per day. Adjusted debt plus preferreds/PD was
$13.81/PD and adjusted debt plus preferreds/daily production was approximately
$31,700 at the end of last year.

For 2013, Fitch estimates EBITDA for Chesapeake should rise to between $4.5
billion-$5 billion, resulting in an unadjusted debt/EBITDA of near 3x. Given
those EBITDA expectations, Chesapeake should not have difficulty with revised
revolver covenants for 2013 (4.5x for June 30, 2013, 4.25x for Sept.30, 2013
and 4x for Dec. 31, 2013). Fitch's free cash flow (FCF) expectation for 2013
is that the company will be have a FCF deficit of approximately $3.5 billion
which will be funded with a minimum of $4 billion in assets sales. This
deficit is significantly smaller than last year's. Expectations for 2014 are
for a somewhat smaller funding gap which will again be funded with asset
sales. These deficits continue near-term as result of the company's efforts to
increase liquids production that have higher realizations and margins than
that of natural gas.

OPERATIONS

Operationally, Chesapeake expects roughly flat production this year versus
2012. This follows a 19% production increase in 2012 and 15% increase for
2011. Liquids production continues to increase quarterly and now stands at
approximately 24% of total production compared to less than 10% three years
ago. Expectations are for further single-digit percentage production increases
in 2014. In terms of reserve and costs, Chesapeake's three-year average
finding, development and acquisition costs are approximately $20 per barrel of
oil equivalent, which is competitive within its peer group.

LIQUIDITY

Chesapeake's liquidity comes primarily from its $4 billion secured credit
facility that expires in 2015. As of the end of the first quarter, the company
had slightly over $3.1 billion in available liquidity on this facility after
drawings of $832 million and letters of credit of $31 million. The company
also derives liquidity from a secured credit facility ($500 million) at its
oilfield services unit that was mostly drawn at quarter-end as well as from
continuing asset sales. Going forward, Fitch expects that the company will
maintain a larger liquidity buffer than it has historically. The company's
next major maturities occur in 2015 when approximately $2.5 billion
potentially comes due.

OUTLOOK REVISION

The Outlook revision reflects a stronger natural gas price outlook for 2013
and 2014 and, as a result, a stronger outlook for cash flows. Additionally
factored into the revision is better available liquidity, expected completion
of at least $4 billion in asset sales before year-end, and Fitch's
expectations of a more conservative financial strategy given the revamp in the
Board of Directors over course of the last year.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to
positive rating action include:

--Material progress in deleveraging the balance sheet relative to reserves and
production;

--Much stronger cash flow generation leading to consistent and significant
positive free cash flow generation.

Negative: Future developments that may, individually or collectively, lead to
negative rating action include:

--Increased debt levels relative to reserves and production;

--Weak natural gas or crude prices leading to a reduction in expected cash
flow;

--Marked decrease in production levels or proved developed reserves relative
to debt;

--Reduction in available liquidity.

Fitch affirms Chesapeake as follows:

--LT IDR at 'BB-';

--Unsecured Term Loan at 'BB-';

--Senior unsecured notes at 'BB-';

--Senior secured revolving credit facility at 'BBB-';

--Convertible preferred stock at 'B''.

The Rating Outlook is now Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Relevant Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Rating Oil and Gas Exploration and Production Companies: Sector Credit
Factors' (Aug. 9, 2012).

Applicable Criteria and Related Research

Rating Oil and Gas Production Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682334

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=791471

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.

Contact:

Fitch Ratings
Primary Analyst:
Sean T. Sexton, CFA, +1-312-368-3130
Managing Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Dan Harris, +1-312-368-3217
Associate Director
or
Committee Chairperson:
Judi M. Rossetti, CFA/CPA, +1-312-368-2077
Sr. Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com
 
Press spacebar to pause and continue. Press esc to stop.