Is Chesapeake Really In Play? (CHK, BP, STO)

January 26, 2009 by Douglas A. McIntyre

Money_stack_pic_5Chesapeake Energy (NYSE: CHK) is trading marginally higher today on market chatter that BP plc (NYSE: BP) wants to acquire the company.  We first noticed this in the trading for options volume in our Volume Spike analysis from call options activity.   This would make for a very interesting combination, but we want to stress the fact that there has been market talk about this before.

First, prior chatter doesn’t eliminate the threat ofcurrent rumors nor does it mean that a merger is not possible.  We just recently covered how big oil could go shopping, and that list of stocks shows a much broader range.

On January 5, we noted how Chesapeake sold off more assets.  After that, ourtally was "nearly $10 billion raised in cash" from its sales.  If thatis true, a buyer could almost get this one for free today.  Justremember that this is a big "if" when it comes to the full value, andthat means that you can’t use the past balance sheet in youranalysis to come up with real numbers.

Chesapeake previously announced a sale of the 32.5% interest in itsAppalachian Marcellus Shale assets to StatoilHydro (NYSE:STO), Norway’sstate oil company.  The company was set to pocket about $3.375 billionin exchange for about 600,000 net acres.

It is very possible that a deal could come.  But it is also likely thatthere are a handful of individuals who think they know what the realvalue of Chesapeake is today.

Chesapeake shares are up over 7% at $16.01 late in the day.  We wouldalso caution the rumor monger traders on the point that with 40 minutesto go it has traded about 18 million shares of common stock.  Its3-month average volume in any given days is about 26 million shares.

Jon C. Ogg
January 26, 2009