Chesapeake files for possible spinoff of oilfield services

Chesapeake Energy (CHK) +2.6% premarket on news that it has filed with the SEC for a possible spinoff of its oilfield services division.

CHK says it intends for the spinoff to be tax-free to its shareholders for U.S. federal income tax purposes.

The business, which would be called Seventy Seven Energy after the spinoff, operates the fifth-largest U.S. land-based rig fleet, with 77 walking, pad-capable units; it drills, provides oilfield tools and operates fracking services in the Permian Basin, Eagle Ford, Marcellus and other U.S. shale plays.

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Comments (5)
  • Belangerfp
    , contributor
    Comment (1) | Send Message
    Not sure how this transaction, if completed, will affect a share owner of record. It could either be a risk or a benefit. If anyone with more experience in this area can shed some light on this, it would be appreciated
    17 Mar 2014, 05:15 PM Reply Like
  • MB
    , contributor
    Comments (74) | Send Message
    You get shares of the new company. Creating a new pure play drilling company should be much better for the shareholders. These transactions are typically done because the company doesn't think they are getting full value for the entity being spun off.
    17 Mar 2014, 05:38 PM Reply Like
  • GamCap LLC
    , contributor
    Comments (501) | Send Message
    Would be better to see a sale to pvt. equity as these spin offs can get complicated. 500 mil revolver, 600 mil COS debt..def. goes with addition, according to the filing...a "special div will be paid to CHK(not shareholders). Could see 20% spun to shareholders, 25% sold to a strategic buyer(Olmers, Temeasek..etc) and the rest kept by CHK(to be sold off over the next several years). 2 many unknowns to evaluate..need more data.
    17 Mar 2014, 08:15 PM Reply Like
  • papayamon
    , contributor
    Comments (1350) | Send Message
    Long jan 2015 $22 options on chk. I suppose i would also get options on the new company as well, with a value pro-ration between?
    17 Mar 2014, 10:32 PM Reply Like
  • Harry Johnson
    , contributor
    Comments (516) | Send Message
    176 pages of data in the Form 10, but maybe the only question that needs to be asked is why a buyer couldn't be found. Some reasons might be that CHK is the major (maybe only) customer of the oil services division. When it becomes Seventy Seven Energy, it will have to bid for work like all the other service companies. Another might be the relatively heavy debt load. Financial statement charges for depreciation of drilling rigs, heavy trucks, frack pumps and the like is real (if not understated) and you can't maintain the equipment and service debt with the same dollar. In other words it may turn out to be EBIT and not EBITDA.
    17 Mar 2014, 10:57 PM Reply Like
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