Boston, MA 04/24/2014 (wallstreetpr) – Chesapeake Energy Corporation (NYSE:CHK) is now ready to spin-off its oilfield services (COS) division after the sale of its natural gas compression unit last month.
Why spin-off
The Company has taken the move to avoid further margin pressure due to high incurred losses from the division. The COS division reported a loss of $19.7 million In FY2013 compared to a profit of $69.6 million in FY2012 due to weak performance resulted from lower utilization rates. The continued pricing pressures and rising operating costs affect the overall margin significantly.
The division mainly provides equipment to the U.S. companies usually involves in exploration and production of energy. It offers services like rentals for oilfields, drilling and hydraulic fracturing. During FY2013, the Oilfield segment revenue increased by 16% year over year to $2.2 billion, but, it has a limited impact over the top line growth as the division accounts only 5% of Chesapeake Energy’s total revenue of $17.51 billion.
Moreover, high capital spending on its properties, increasing operating costs and high legal expenses further creates liquidity pressure for Chesapeake Energy Corporation (NYSE:CHK).
How it help to sustain margin
Chesapeake Energy expects to generate proceeds of ~$1 billion from asset sales in 2014. The spin-off will produce ~650 million of proceeds that has a minimal impact over the overall improvement in operating cash flow during 2014. It also consolidates its operation by leveraging its strong position only on exploration and production.
The sale of assets will reduce the gap by $1.0 billion between capital spending over its oil and gas properties and operating cash flow. Chesapeake Energy continues to review and dispose of non-core assets in 2014 that help to reduce financial obligations, as well as leverage. Now, Chesapeake Energy Corporation (NYSE:CHK) optimizes its portfolio to create profitable growth from its resources.
