the E&P firm must allocate significant amounts of cash in order to even keep production levels flat. This, combined with the repayment of some debt, has resulted in large capital outlays that have surpassed how much cash flow has come into the business. At the end of the first quarter of 2017, for instance, the firm had $249 million in cash and cash equivalents. At the end of 2016, just one quarter earlier, this number totaled $882 million. By the third quarter of last year, the business had just $5 million.
even as cash declined over the past four quarters (ending in the third quarter of last year), the amount borrowed under the business’ revolving credit facility grew from nothing to $645 million. I stated before that continued expansion of amounts borrowed here would probably occur without any material asset sales and/or without cutting back on capex.
According to management, Chesapeake’s revolving credit facility at the end of 2017 totaled $781 million, up $136 million from one quarter earlier.
Namely, if production isn’t growing and if all cash goes toward just keeping everything running as-is, where’s the value for investors? If management can make significant headway when they announce 2018’s budget, my feelings on this could change, but until then I don’t feel comfortable with owning Chesapeake.