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Following the drop in the shares of global markets who suffered from leap in oil prices, Chesapeake Energy (CHK) shares rose to 7.55% to $6.55. Crude oil increased by 1.42% to $48.09 each barrel while there was a 1.57% increase to $49.93 each barrel for the Brent Crude.

Amongst the markets who experienced declines were Tencent Holdings LTD which experienced a plunged of 0.6%.

Oklahoma-based producer surged up by 29% after it announced a couple of weeks ago that it arranged a five-year term loan worth $1 billion to get their senior notes which are due from 2017 to 2038 and has start tender offers in getting back their convertible senior notes worth $500 million which is due on 2037 and 2038 and another launch of tender offers to buy back senior notes due from 2017-2023 worth also $500 million.

Despite a number of energy companies like Linn Energy and Breitburn Energy Partners L.P. who fell for the rise in oil prices, Chesapeake Energy’s shares have risen by 26% for the past month that investors flocked in for the buy again. Before the stocks rallied back again, the stocks closed at 6.09. News of the company’s gains afterwards led the stocks to close at 6.46.

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Chesapeake sells Barnett shale

Just a couple of weeks ago, Chesapeake energy announced that they have agreed to sell their Barnett shale acreage located in Texas to Saddle Barnett Resources another energy company.

The sale of Chesapeake Energy’s Barnett shale acreage was a good move for the company especially after their weak Q2 earnings report which is believed by many to be greatly burdened by their other properties on oil and natural gas. This also will allow them to go through a restructuring which includes getting rid of assets under development faster.

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Shares then rose by 5% closing at 5.05 from its recent close of 4.80 to a close of 5.03 the following session. This sale was expected rid them of $1.9 billion commitments to any upcoming Barnett Shale midstream and downstream and to increase Chesapeake’s operating income from $200 to $300 million each year until 2019. In addition to the sale, Chesapeake is set to end their current gathering agreement with pipeline operator Williams Partners by paying $334 million. 

Aside from it, a gas gathering agreement with Williams in their Mid-continent area also has been renegotiated by Chesapeake for $66 million. As a part of the deal to be given 2,800 operated wells and 215,000 acres of land, Saddle Barnett will also pay Williams Partners $420 million.

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Back in April and May during a series of low oil and gas prices, Chesapeake experienced a plunge in their stocks with a loss in their first quarter earnings and smaller assets. For eight consecutive sessions, from April 28 until May 6 where stocks dropped at 4.8% to $5.43 closing at 4.10.

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By May 3, crude futures were down by 2.8% at $43.51 per barrel with Chesapeake’s stocks plunging down by 9% to $5.99. Although there is a disappointing Q1 earnings report for the company, they have managed to increase their production at that point by 1% which is an additional 672,400 barrels of oil each day which was later followed by a loss of $1.44 per share of $964 million net and a decline of 39% in their revenue. The company’s debt would have been decreased then with a sale of their developmental assets. 

Conclusion

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With the company’s debt levels being addressed with the sales of their excess assets and properties set for developing, further efforts in their debt reduction has been what investors has been waiting since earlier this year. The company has managed and showed this with their recent sale of the Barnett Shale in Texas. A significant rally caused by their recent asset sales will likely lead their stocks to rally further.

Aside from the successful Barnett Sale, Chesapeake also has been successfully able to obtain a term loan to decrease their debt load from $1 billion to $1.5 billion which is backed up by the increasing investor demand. Any positive actions taken to clean up their financial obligations might also translate into a rally in their stocks.

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