SandRidge Energy Inc. (SD), Chesapeake Energy Corporation (CHK), Hess Corp. (HES): Three Opportunistic Energy Plays on Shareholder Activism

Shareholder activisms in both Chesapeake Energy Corporation (NYSE:CHK) and Hess Corp. (NYSE:HES)

Tom Ward was the co-founder of Chesapeake Energy Corporation (NYSE:CHK) with Aubrey McClendon. Interestingly, Chesapeake Energy has also been facing shareholder activism from several investors including Carl Icahn, Mason Hawkins and Paul Tudor Jones. Chesapeake is considered to be the second largest natural gas player in the U.S., having nearly 15.70 tcfe in its total proved reserves. Chesapeake Energy Corporation (NYSE:CHK) has been unlocking shareholder value by divesting several non-core assets. The company said that it has already signed $2 billion of asset sales since the beginning of the year. Chesapeake Energy Corporation (NYSE:CHK) announced its goal of divesting $4 – $7 billion worth of assets within 2013. It is trading at around $19.50 per share, with a total market cap of around $13 billion. The market values Chesapeake Energy Corporation (NYSE:CHK) much higher than SandRidge, at 5.82 times its trailing EBITDA.

Another big energy player, Hess Corp. (NYSE:HES), has been faced with shareholder activism. One of the company’s biggest shareholders, Elliott Management, with a 4.5% stake in the company, thought that Hess could be worth as much as $126 per share, around two times higher than its current trading price of $64.30 per share. Elliott had recommended Hess Corp. (NYSE:HES) do three things to unlock the company’s potential value: (1) spin off Bakken, Eagle Ford and Utica areas; (2) divest the downstream assets and turn its midstream assets into MLP or REIT; and (3), streamline the remaining international portfolio. In the middle of May, Hess and Elliott Management reached an agreement to end the proxy fight, adding Elliott’s three board seats to Hess Corp. (NYSE:HES)’s board in exchange for Elliott’s support of the company’s slate of five directors. Looking forward, with three board seats, Elliott could be given more strength to follow its plan, and unlock the hidden potential value of this global energy company. Hess Corp. (NYSE:HES) is also quite cheaply valued, at only 3.4 times its trailing EBITDA.

My Foolish take

All three energy companies could be considered good opportunistic plays on shareholder activism. As all three companies have quite valuable oil/gas assets and they are quite cheaply valued on the market now, they could fit in the long-term portfolios of patient investors.

Anh HOANG owns shares of Chesapeake Energy and Hess. 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.

The article Three Opportunistic Energy Plays on Shareholder Activism originally appeared on Fool.com.

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