Chesapeake Considers Sale or Spinoff of Oilfield ServicesYuriy Humber and Jim Polson
Chesapeake Energy Corp., the second largest U.S. natural gas producer, is considering the sale or spinoff of its oilfield-services unit to existing shareholders.
The unit, Chesapeake Oilfield Operating LLC, had sales of about $2.2 billion last year and is able to work as a stand-alone firm, the Oklahoma City-based energy producer said in a statement today. The unit earns about 35 percent of its revenue from contracts with companies other than its parent.
Chesapeake Energy is cutting capital spending by about 20 percent this year and pursuing further asset sales as it faces a funding gap of about $1 billion in 2014. The company reorganized the unit in 2011 and filed paperwork with the U.S. Securities and Exchange Commission without ever moving forward with an initial public offering.
Chief Executive Officer Doug Lawler “wants to simplify the company,” Fadel Gheit, a New-York based analyst for Oppenheimer & Co. who rates the shares at buy and owns none, said today in an interview. “I assume there will be more to come.”
The oilfield services unit owns or leases 115 rigs, owns nine hydraulic-fracturing fleets, rents equipment for oil fields and operates 260 rig-relocation trucks, as well as cranes and forklifts, according to Chesapeake Energy.
Based on reported earnings before interest, taxes, depreciation and amortization, the business would be valued at about $1.7 billion, Scott Hanold, a Minneapolis-based analyst for RBC Capital Markets, wrote today in an e-mail.
Chesapeake rose 2.7 percent to $27.29 at the close in New York.
Chesapeake aimed to raise $862.5 million from the proposed 2012 public offering it didn’t pursue, Gheit said.
“The market today is not as good,” Gheit said. “Companies are using less rigs. They are trying to contain costs. It’s different than three years ago, when people were just ‘drill, drill, drill.’”
In November 2011, then chairman and CEO Aubrey McClendon estimated the oilfield service unit’s value at $5 billion to $7 billion. McClendon was raising cash to fund drilling and pay down debt amid the lowest natural gas prices in a decade.
McClendon resigned from Chesapeake after a shareholder revolt led by Carl Icahn and Southeastern Asset Management Inc.’s O. Mason Hawkins. He formed American Energy Partners LP in April 2013.