Board Shakeup Boosts Chesapeake Energy (CHK)

Decade-low natural gas prices and mounting debt have plagued Chesapeake Energy (NYSE: CHK) in recent months. To stop the bleeding, the Oklahoma-based company is cleaning house.

Chesapeake Energy announced today that it will replace four of the nine members of its board of directors, as requested by some of the company’s largest shareholders. The shakeup comes at a time when the nation’s second-largest natural-gas producer has seen its market value slashed in half over the past year, with shares down 27% in 2012 alone.

The company’s quarterly profits have dropped from $922 million in the third quarter of 2011 to $473 million in the fourth quarter to a $28 million loss in its most recent quarter. Revenue has also dwindled, from just under $4 billion in the 2011 third quarter to $2.4 million last quarter.

Today’s shakeup, however, has given the stock at least a temporary shot in the arm. Chesapeake Energy shares are up 4.5% in mid-day trading. The new board will officially be in place by June 22.

Once reconstituted, the new board will have its hands full trying to make a dent in Chesapeake Energy’s $13.1 billion in long-term debt, including the $1.4 billion in previously undisclosed liabilities the company reported last month.  The company said it plans to trim the debt down to $9.5 billion by year’s end.

Of course, that won’t change the fact that natural gas prices remain near their lowest levels in 10 years. With spot prices at $2.33 at the moment, natural gas is half the price it was a year ago. Until those go up, Chesapeake and other natural gas companies will have a hard time increasing their profits.

So while today’s leadership shakeup is a sign that Chesapeake Energy is serious about making changes, the real improvements likely won’t come until natural gas prices go up again.

Published by Wyatt Investment Research at