Chesapeake Energy Corporation (CHK) is an Opportunistic Buy

Chesapeake Energy Corporation (NYSE:CHK) has recently reported that it would sell its 50% interest in an oil and natural gas field Mississippi Lime to China’s Sinopec for more than $1 billion. Right after the announcement, Chesapeake dropped by nearly 7% to $19.10 per share. Will the sale benefit Chesapeake? Is Chesapeake an investment opportunity when its shares have recently tanked?

A Second Largest Natural Gas Company in the US

Chesapeake Energy Corporation (NYSE:CHK) is considered to be the second largest natural gas producer in the US, only behind Exxon Mobil Corporation (NYSE: XOM). The company had around 19.6 trillion cubic feel equivalent of proved reserves in 15 million net acres of leasehold in total, while ExxonMobil had nearly 26.7 trillion cubic feet equivalent. Previously, Chesapeake Energy Corporation (NYSE:CHK) announced that it would sell its non-core assets to focus on profitable “core of the core” drilling area. Last year, the company sold up to $12 billion of non-core assets, and it targeted another $5 -$7 billion more this year. In the past 5 years, it has shifted its investment significantly to liquid plays for much higher returns. In 2008, only 13% of its total capital was invested in liquids, while 87% was invested in dry gas. In 2012, the situation was reversed–84% of the total capital was invested in liquids, whereas only 16% went to dry gas.

Source: Chesapeake’s presentation

The revenue from liquids has grown dramatically, accounting for 59% of the company’s total realized revenue in 2012, whereas total liquids production represented 21% of the total production.

Chesapeake Energy Corporation (NYSE:CHK) seems to be reasonable in its operation. As of December 2012, it had nearly $17.9 billion in its total stockholders’ equity, $287 million in cash, and nearly $12.6 billion in short and long-term debt. The average maturity is around 5.3 years. The majority of its debt would be due in 2017, with the principal of nearly $4.3 billion. The debt amount due this year is only $464 million.