The Chesapeake resurgence: the fracking pioneer lives her second youth

Chesapeake Energy is one of those companies that has seen several ups and downs since 1989, when it was founded. The one that was the second largest producer of natural gas in the United States and a pioneer in the fracking or hydraulic fracturing, reached a capitalization of more than 35,000 million dollars (31,120 million euros) in 2008.

These were good times for the company and for Aubrey McClendon, its founder. However, in 2016, McClendon lost his net worth of $ 1.2 billion after being accused of rigging bids for drilling rights and federal conspiracy charges. And not only that, since one day after being accused, he lost the most valuable thing, his life, after suffering a traffic accident.

In 2016, the company plummeted due to the price of oil and natural gas and lost $ 18.92 billion compared to the $ 3.48 billion it earned in 2014. In 2020, Chesapeake Energy went on to reach a capitalization of $ 116 million ($ 103 million euros) and a week later it declared bankruptcy with a debt that amounted to 9,000 million dollars (7,998 million euros), thus becoming the biggest victim in the country of the collapse in energy prices.

Now recapitalized and trading again, the Chesapeake is living its second youth. Net debt was reduced from about $ 9 billion to $ 600 million, annual interest and preferred dividend payments were down by about $ 700 million, and its management and leadership were updated. Now everything is going well and a good example of this is that in August 2021 it reached an agreement to purchase the natural gas company, Vine, for 2.2 billion dollars.

The price of its share has gone from having a value of 45 to 60 dollars in six months, nothing to do with the 1.5 that it reached in its lowest hours. A cheap stock compared to other natural gas producers, offering an attractive entry point for investors. For now, this new approach is well suited, although the company’s management knows it has yet to win back investors: “Talk is cheap. We get it,” said Michael Wichterich, chairman of the Chesapeake board of directors. Barron’s.

If all continues as before, Chesapeake expects to generate a cash flow of $ 6 billion by 2025, roughly equal to the company’s market value today. In the meantime, investors will start receiving the reimbursement directly and immediately. The new dividend regime begins in 2022 and as UBS’s Lloyd Byrne advances, the stock will yield 12% in dividends next year.