For Immediate Release
Chicago, IL – April 11, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Chesapeake Energy Corporation (CHK), Blackstone Group LP (BX), Morgan Stanley (MS), ExxonMobil Corporation (XOM) and Vivus Inc. (Nasdaq: VVUS).
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Here are highlights from Tuesday’s Analyst Blog:
Chesapeake Continues to Divest
Chesapeake Energy Corporation (CHK) announced three divestiture agreements that will raise cash of $2.6 billion in total to cope with the mounting debt level as well as to fill the funding gap for its 2012 expenditures that resulted from low natural gas prices.
The first deal involves the sale of $1.25 billion worth of preferred shares in a subsidiary – CHK Cleveland Tonkawa LLC – to an investment group led by an affiliate of Blackstone Group LP (BX). The purchasers also comprise private equity firm TPG Capital, hedge fund Magnetar Capital as well as EIG Global Energy Partners LLC.
The agreement gives the purchasers a share of royalties from 1,000 oil and gas wells in the Cleveland and Tonkawa plays in Oklahoma. They will also be entitled to a 6% annual distribution, while Chesapeake will hold an option until 2019 to repurchase the shares, at a valuation equivalent to an above 9% internal rate of return or a return on investment of 1.35x.
For the second accord, Chesapeake struck a $745 million natural gas production agreement with a subsidiary of Morgan Stanley (MS). This 10-year volumetric production payment (:VPP) contract enables Chesapeake to receive upfront cash for future hydrocarbon production related to certain assets in the Anadarko Basin Granite Wash.
These assets in southern Midwest, with a daily production of an estimated 125 million cubic feet of natural gas, have the proved reserves of 160 billion cubic feet of natural gas equivalent. The deal also represents Chesapeake's tenth VPP concord, since December 2007, which raised approximately $6.4 billion.
Finally, the company struck a purchase and sale agreement with a subsidiary of U.S. behemoth ExxonMobil Corporation (XOM), XTO Energy Inc. The transaction – expected to close on April 30 – is valued at approximately $590 million in cash that excludes certain deduction and standard closing adjustments.
This latest deal entitled Chesapeake to sell 58,400 net acres of leasehold in the Texoma Woodford play in Bryan, Carter, Johnston and Marshall counties in Oklahoma to XTO that has a current net production of approximately 25 million cubic feet equivalent per day.
These deals make it clear that the U.S. second largest natural gas producer is facing a crisis to pull down its debt level that amounted to $10,626 million, representing a debt-to-capitalization ratio of 39.0% at the end of the fourth quarter of 2011.
We believe Chesapeake is one of the most active players in the industry to manage its asset portfolio through a combination of acquisitions and disposals. However, since natural gas accounted for about 82% of Chesapeake’s production in the fourth quarter of 2011 and as near-term speculations of challenging natural gas fundamentals remain, we are apprehensive that the company’s results will be vulnerable to fluctuations in the relevant markets. Hence, we believe that the stock will perform in line with the group and maintain our long-term Neutral recommendation.
The company holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.
Wait Continues for Vivus’ Qnexa
Vivus Inc. (Nasdaq: VVUS) will have to wait an additional three months before the US Food and Drug Administration (:FDA) delivers a decision on the approvability status of its lead pipeline candidate, Qnexa. The FDA has extended Qnexa’s target date to July 17, 2012 from April 17, 2012.
The news was not completely unexpected as Vivus had submitted the Risk Evaluation and Mitigation Strategy (:REMS) for Qnexa in the first week of April. The REMS is a major amendment to the NDA and consisted of proposed REMS materials. Since Vivus made the submission within three months of the target date, the FDA had to extend the PDUFA date in order to review the submission.
We note that Vivus resubmitted the new drug application (:NDA) for Qnexa in October 2011. The resubmission followed the company’s agreement with the FDA’s Endocrine and Metabolic Division in September 2011.
The company is seeking to get Qnexa approved for the treatment of obesity, including weight loss and weight maintenance for obese patients (BMI > 30 kg/m2), or overweight patients (BMI > 27 kg/m2), with weight-related co-morbidities such as hypertension, type II diabetes, dyslipidemia, or central adiposity (abdominal obesity).
We would like to remind the investors that the FDA’s advisory committee voted 20-2 in February 2012, for the approval of Qnexa on the basis of a favorable benefit-risk profile of the candidate.
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