Share “Chesapeake shares suffer late-day plunge”

Chesapeake shares suffer late-day plunge

Associated Press Modified: May 11, 2012 at 6:01 pm •  Published: May 11, 2012

NEW YORK (AP) — Shares of Chesapeake Energy Corp. plunged 14 percent Friday after the company suggested some of its planned asset sales could be delayed.

Chesapeake has been aggressively selling oil and gas assets in hopes of raising money to reduce debt and fund its operations. Investors worry about a cash crunch if any sales are delayed or halted. Chesapeake has outlined plans to sell as much as $14 billion of assets this year.

In a quarterly financial statement released shortly before the close of trading, the company said that asset sales help reduce debt, but they can also reduce cash flow if they include wells that are producing natural gas and oil. The company's cash flow is already being staunched by natural gas prices that are 40 percent lower than they were a year ago. If the company's cash flow falls below certain levels, the company could run afoul of agreements it has made with banks and lose access to loans.

"As a result, we may delay one or more of our currently planned asset monetizations," the company's filing said.

The shares lost $1.58 in the last 45 minutes of trading, knocking off about $1.05 billion from Chesapeake's market capitalization.

Phil Weiss, an analyst at Argus Research, said if Chesapeake can't raise enough money, it may not be able to afford to drill everywhere it needs to in order to retain its drilling rights. Many oil and gas leases require the driller to either begin work or give up rights to drill.

Shares drifted lower earlier in the day after a published report said the company didn't tell investors about $1.4 billion in liabilities.

The Wall Street Journal reported that Chesapeake had raised $6.4 billion since 2007 by signing oil and gas production deals with a number of banks. Those deals are essentially debts that Chesapeake must repay with oil and natural gas. The Journal said the full cost of meeting those obligations over the next 10 years wasn't disclosed.

Chesapeake spokesman Michael Kehs disagreed. He said a portion of those liabilities were included in a May 1 regulatory filing as part of its operating costs for 2012. Kehs said the rest of the $1.4 billion is reflected in an estimate of future net revenue from Chesapeake's oil and natural gas reserves, which the company put at $48 billion in a Feb. 29 regulatory filing.

A string of negative headlines have called Chesapeake's leadership and oversight into question. During the past few weeks, other news reports revealed that CEO Aubrey McClendon had taken out personal loans from a company while that company was planning to buy Chesapeake assets. Reuters also reported that McClendon ran a private hedge fund that made bets on the price of oil and natural gas — commodities that Chesapeake produces.

Chesapeake has stripped McClendon of his board chairmanship. It's also ending a program that allows McClendon to make personal investments in the company's wells. On Friday, Chesapeake said McClendon received $108.6 million from January to April from sales of company well assets.

Shares have dropped 42 percent since peaking this year on March 20. Low natural gas prices and reports of McClendon's financial dealings helped push them lower. They fell $2.37, or 13.8 percent, to $14.81 Friday.