Chesapeake Energy Corp (CHK.N) said it expects to sell more than $4 billion in assets this year and will spin off its oilfield services division as the second-largest U.S. natural gas producer focuses on drilling more profitable wells and improving returns.
Doug Lawler has been chief executive officer of Chesapeake for nearly a year. Under Lawler, the Oklahoma City company has worked to drastically cut costs and debt and increase output of higher-margin crude oil and natural gas liquids.
The strategy marks a dramatic shift from Chesapeake under former CEO Aubrey McClendon, who spent heavily to acquire millions of acreage in shale formations across North America.
"This company is no longer going on a million-acre, three million-acre spending spree," Lawler told a meeting of Wall Street analysts in remarks that were webcast.
Lawler's plans, which included cutting 10 percent of Chesapeake's workforce, have so far been welcomed by Wall Street. The company's stock is up 39 percent for the past 52 weeks, better than the 13.3 percent gain in the Standard & Poor's 500 index.
Still, shares of Chesapeake slid 4.6 percent to $27.65 in midday New York Stock Exchange trading. Investors were disappointed by a 16 percent rate of return from the company's properties in the Powder River Basin in Wyoming.
"I'm not proud of that," Chris Doyle, head of Chesapeake's northern division, told analysts, adding that returns would improve as more oil and gas processing comes online.
Chesapeake's Powder River Basin returns are "underwhelming," analysts at CapitalOne Southcoast said in a note to clients on Friday.
The company said it will proceed with a spinoff of its oilfield-services business, which includes the NOMAC drilling rig unit, to shareholders in a tax-free transaction.
Chesapeake said the asset sales and divestitures would cut debt by $3 billion, but reduce 2014 production by 2 percent.
The company forecast a rise of 9 percent to 12 percent in production this year, and said the growth rate would slow to 7 percent to 10 percent in 2015 because of the asset sales.
The company, which has already raised $925 million so far this year, said it agreed to sell certain producing assets in Southwestern Oklahoma, East Texas and South Texas for about $310 million. It also agreed to sell assets in southwest Pennsylvania and Wyoming for about $290 million.
The company set a capital budget of $5.5 billion to $6 billion for 2015, higher than the $5 billion to $5.4 billion it plans to spend this year.