Is Chesapeake a REIT? (CHK)

At the end of 2010, Chesapeake Energy Corp. (NYSE: CHK) listed its long-term debt at $12.64 billion, down from $14.3 billion at the end of 2008, but up a little from $12.3 billion in 2009. At the end of the third quarter, the company’s long-term debt totaled $11.8 billion.

In 2010, the company sold more than $10 billion in assets and lowered its long-term debt by about $2.3 billion. Earlier this year, Chesapeake announced a “25/25” plan that would reduce the company’s debt by 25% while increasing production by 25% by the end of 2012. The second part of that plan is probably history since the company announced earlier this month that it would cut back on production due to low prices for natural gas.

But what about its debt reduction plan? To reach a 25% reduction from the end of 2010 figure, the company would have to pay down about $3.2 billion in long-term debt. To make that number, Chesapeake’s CEO said in January 2010:

This [25/25] plan represents a fundamental shift from our aggressive asset accumulation of the past few years to a multi-year period of asset harvest, characterized by a clear focus on capital discipline and maximizing returns.

The company’s gas production doesn’t figure in much, especially with today’s low gas prices. Like other natural gas producers, Chesapeake is going after the oil and other liquids, the prices of which are rising. That’s smart, of course, but it’s not enough to carry the company.

Chesapeake’s business model has been to beat its competitors to new discoveries, to lock up as many acres in a new field as it can, to produce enough gas to demonstrate that the new field is as good as the company claims, and then to sell the assets to raise more cash. Lather. Rinse. Repeat. Here’s one analyst’s summary:

Chesapeake is a very good land speculator. They buy land and then later they flip it. They gear these sales to fund capital expenditures. They’re almost better at partnering than pumping gas wells.

Does that sound more like an oil & gas production company or a REIT?

Chesapeake shares are up nearly 4.5% today, at $21.90 in a 52-week range of $20.41-$35.95.

Paul Ausick