Shares of natural gas firm Chesapeake (CHK) are higher on Wednesday following a report that said Comstock Resources (CRK) is in talks to buy Chesapeake’s Haynesville shale assets in Louisiana in a deal that could be worth more than $1B. COMSTOCK IN TALKS TO BUY CHESAPEAKE ASSETS: Comstock Resources is in talks to buy Chesapeake Energy’s Haynesville shale assets in Louisiana in a deal that could be worth more than $1B, according to Reuters’ Arathy Nair, citing sources. The two oil companies have settled on a structure for the deal and hope to finalize an agreement by year end, the report added. COVENANT BREACH HOPE: On Wednesday, Morgan Stanley analyst Devin McDermott downgraded Chesapeake to Equal Weight from Overweight with a price target of $1.25, down from $2.25, after the company issued a “going concern” warning that it may exceed certain debt covenants within the next 12 months. He estimates Chesapeake’s leverage, excluding the “ring-fenced” Brazos Valley subsidiary, at 5.0 times on a rolling 12-month basis and while he expects the company to successfully manage through the potential covenant breach, it will likely require strategic action or waivers, said McDermott, who sees “a wide range” of potential outcomes. CHESAPEAKE CEO CONFIDENT: Chief Executive Officer Doug Lawler commented this week that “Chesapeake continues to strongly believe our current capital and operating program, coupled with the planned 30% reduction in capital expenditures in 2020, will strengthen the financial position of the company for the long term. We have substantial liquidity with no significant near-term maturities. We continue to pursue strategic levers to reduce debt, including asset sales, capital markets transactions, and focus on cost discipline. Additionally, we are de-risking our cash flows through our hedging program and remain confident in our long-term liquidity.” PRICE ACTION: Shares of Chesapeake Energy are up over 7% to 73c in afternoon trading.
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