Chesapeake: Short-Term Mess, Takeover Target

| About: Chesapeake Energy (CHK)

A lot of recent news has been focusing on Chesapeake Energy (NYSE:CHK), and most of it is not exactly what I would consider "good news." Chesapeake currently looks like a good target for investors who hope that gas prices will soon rebound. As a result, Chesapeake may soon be acquired by another company. Its net debt and equity is currently valued much lower than similar companies, making the oil-and-gas provider a prime target for acquisition. The industry is experiencing a ten-year low in the price of natural gas, and this has hit Chesapeake hard, as natural gas accounts for 83% of its reserves.

There are also current investigations into the way Chief Executive Officer Aubrey McClendon's personal loans were backed by stakes in company-operated wells. This situation has damaged the credibility of the company, and McClendon's chairmanship position has been stripped until the investigation can be completed.

Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) and Royal Dutch Shell (NYSE:RDS.A) are the major companies that may be interested in acquiring Chesapeake. In my opinion, it would be a great idea for a company to take a chance with the second largest producer of natural gas in the world. A rise in prices could happen at any time, and when it does, the company that has access to Chesapeake's reserves will certainly be in a strong position. As Peter Sorrentino puts it, this would be a great way for the oil companies to "pick up reserves on the cheap."

I strongly believe that in the future, Chesapeake will be worth substantially more than it is today. Companies that do not try to benefit from this rare opportunity may end up kicking themselves in the very near future. Chesapeake's assets remain a desirable acquisition, despite the drama that the company has experienced lately.

Billionaire Carl Icahn recently purchased a number of shares in the company. This did cause the stock to rebound, but the company is still down by about 27%. At this point, it is unclear what the billionaire will do with the power he now holds in the company and whether or not he is in favor of a sale. Regardless, a major funding gap has been left due to the decline in natural gas prices and the activities of McClendon, and this gap needs to be filled soon. At the moment, furthermore, I believe Chesapeake is at great risk of being acquired very soon.

While this is not such comforting news, the company is beginning to make a little progress in trying to fill the funding gap I have mentioned. Chesapeake may be able to do this through selling assets such as its 57,000 acres of lease holdings in East Texas. The company recently put the area on the market, but investors are skeptical as to whether or not this will make a substantial difference to the stock's current position. I agree that this will most likely prove to be quite inconsequential, and I would not put great faith in this stock at the moment.

Looking at Chesapeake competitors, BP (NYSE:BP) may soon restart its exploratory operations in Libya. The company had previously introduced a force majeure in the area due to the civil unrest that forced it to suspend all action. It now seems that the area is safe though. This is finally some positive news for the company that is still dealing with the aftermath of the Gulf of Mexico spill. A federal investigation has been launched into the issue of how honest the company was in reporting the extent of the spill. As a result, BP stock will probably continue to decrease due to the uncertainty over this investigation.

Other competitors like Exxon have also been a part of interesting news stories lately. Investors in some companies have taken stands against the amount of executive pay received by those in the top positions. In contrast to this, however, a recent vote at Exxon showed that the majority of investors were in favor of executive pay packages. This goes against the fact that the pay received by these directors was strongly criticized by outside sources. To me, this demonstrates that investors have confidence in the company and its ability to make decisions on financial issues. As a result, I believe the stock will remain stable in spite of the criticism from outside sources.

Noble Energy (NYSE:NBL) recently announced its intention to sell some of its assets in the North Sea of the United Kingdom. It will sell these assets to Maersk for a price of $127 million. The sale mainly consists of "Noble's 30% non-operating working interest in its Dumbarton and Lochranza properties," but the company may also sell other North Sea assets at some point, perhaps in the near future. This is part of Noble's attempt to get rid of certain noncore assets that are no longer of real benefit. This allows the company to focus on core assets, and I believe this will have a relatively positive effect on Noble stock.

Chevron is also facing an interesting lawsuit issue. The Ecuadorian government has filed a suit against it in Canada. The government of Ecuador believes that Chevron will be unable to ignore court orders in Canada, where it will be possible for the court to seize Chevron assets and freeze them. Chevron maintains that the case is fraudulent, but the bad press could still have a negative impact on the stock.

Many companies in the industry are facing difficulties right now, but I still believe that Chesapeake is the one in the worst position. In contrast to this, investors in Exxon have shown confidence in the company, and if the company acquires Chesapeake, it may be in an even better position. Therefore, Exxon is the stock that I would suggest. Stockholders and potential investors of Chesapeake should watch the potential acquisition closely, but even if it does not happen, the company does not seem to be in a good shape to recover. As a result, I would avoid Chesapeake stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.