Chesapeake Still Faltering (CHK, BP)

The largest natural gas producer in the US, Chesapeake Energy Corporation (NYSE:CHK), reported a GAAP EPS loss of -$1.51 for the fourth quarter of 2008. On a non-GAAP basis, the company earned EPS of $0.73, compared with average estimates of $0.75. Falling prices for natural gas were blamed for the weak results. No surprise there.

For the coming year, Chesapeake seemed to rely more on cheerleading its 2009 prospects rather than providing specific estimates. Perhaps the most telling statement in its earnings release is that the company “anticipates” that it will return to an investment grade rating by the end of 2010.

That’s nearly two years off. And how does Chesapeake plan to get there: “… the company is working to generate at least $1.0 billion of excess cash in each of 2009 and 2010 through various asset monetization initiatives.” So the company plans to increase its value by selling off assets.

One thing the company could do is let itself be acquired by, say, BP plc (NYSE:BP), as the rumors have had it for the past several months. Chesapeake needs to bleed off a lot of debt, and selling off assets piecemeal may work in time–or it may not. Being acquired will definitely work. But does BP, or anyone else, have the courage and the money to take the big step?

Paul Ausick
February 18, 2009