Chesapeake Energy Corporation (CHK): This Issue Is On The Horizon

A distressed seller’s woes
But that prospect looks tenuous, as recent asset sales have been quite disappointing. For instance, Chesapeake Energy Corporation (NYSE:CHK) received less than a third of the price-per-acre value it thought its Mississippi Lime assets were worth when it gave Chinese oil giant Sinopec Shanghai Petrochemical Co. (ADR) (NYSE:SHI) a 50% stake in them.

And its most recent sale of Marcellus Shale assets to Southwestern Energy Company (NYSE:SWN) also fetched a discouragingly low price. If future sales continue to disappoint, Chesapeake Energy Corporation (NYSE:CHK) could have major problems in maintaining the rate of production growth it needs, since sales of producing assets substantially lower both the company’s total production and its cash flow.

Final thoughts
Chesapeake certainly seems to have improved in many of the areas in which it was previously lacking. But it’s facing two curveballs at the same time. If it weren’t plagued by liquidity concerns and could just focus on ramping up liquids production and unlocking value from its existing asset base, things would be much easier.

But maintaining production growth when you constantly have to sell assets, especially at undesirable prices, is no easy task. It will be interesting to see if Chesapeake can rise to the occasion and knock one out of the park.

The article Chesapeake Energy’s Biggest Challenge originally appeared on Fool.com.

Motley Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.