April 1st marked a day of transformation for Chesapeake Energy (CHK), as longtime CEO and founder Aubrey McClendon has officially stepped down, while former COO Steve Dixon has become the interim CEO. Chesapeake's history reads like a Greek tragedy of sorts, filled with pioneering exploration efforts and technological developments, mixed with gross financial mismanagement and huge conflicts of interests. In a hypothetical world where energy prices only went up, Chesapeake's mentality of land acquisition fueled by excessive debt would be a good one, but in the real world this strategy has exposed the company to huge risks, and paved the way for unattractive asset divestitures. While Chesapeake remains a very strong vertically integrated operator, I'm concerned that the company hasn't brought in a CEO from the outside that could take a fresh perspective to the job. Moving forward, I believe that Chesapeake could potentially be an attractive play on recovering natural gas prices and a more responsible financial structure could be a catalyst, but as of now I prefer other undervalued stocks in the sector such as Devon Energy (DVN), BP (BP) and Apache Corporation (APA).
At a recent price of $20.35 and with 643MM shares outstanding, Chesapeake Energy has a market capitalization of roughly $13.09 billion. As of 12/31/2012, Chesapeake had $3.1 billion in preferred stock at liquidation value, $12.8 billion in long-term debt (net of cash), and another $4.1 billion in net working capital and other long-term liabilities. This equates to an adjusted enterprise value of roughly $33 billion, while the most recent PV-10 based on 10-year average NYMEX prices is $27.9 billion, and based on SEC pricing the PV-10 is $17.8 billion. At first glance, this doesn't scream to be a bargain stock, but it is important to keep in mind that Chesapeake is vertically integrated, and has huge acreage holdings that could potentially be sold or developed profitably, depending on market conditions of course. Chesapeake has been a
