Chesapeake Energy Corp.'s shares fell almost 14 percent Friday afternoon as the embattled natural gas producer said it may have to delay some asset sales while it fights to raise cash amid weak natural gas prices.
The stock tumbled $2.37 to $14.81, its lowest in more than three years.
Oklahoma City-based Chesapeake had planned to sell between $11.5 billion and $14 billion in oil and gas properties this year to raise the cash it needs to drill new wells.
"They are under pressure," said James Sullivan, an analyst with Alembic Global Advisors, who has a "neutral" rating on the stock. "The reaction of the market was extreme, but what people have to get a handle on it is the company's ability is to generate cash and what the claims on that cash are."
In its filing, Chesapeake blamed the possible delay on unfavorable natural gas prices and the need to maintain a certain amount of collateral for its other debt obligations.
"Liquidity is a concern for this company," said Philip Weiss, an analyst with Argus Research. "The delay looks like a move to keep proved reserves higher so they don't run afoul of their debt covenant."
After the close of regular trading Friday, the company said Goldman Sachs agreed to lend it $3 billion to repay loans it has made through its revolving credit facility.
"The $3 billion cash infusion is a game changer" in terms of investors' concerns about liquidity, Chesapeake spokesman Michael Kehs said. "Our goals have not changed."
He didn't specify if the $3 billion would change the timing of the asset sales or reduce the sum Chesapeake hoped to raise from them.
The company said it had received "strong interest" from prospective buyers in two sales, which it hopes to complete in the third quarter.
"The third quarter is the target time frame," Sullivan said. "If they don't show the ability to increase cash flow from selling these assets, that is when this will come to a head."
Plummeting natural gas prices have left Chesapeake scrambling for cash in recent months. In the first quarter, it spent an additional $700 million and took on $2.4 billion of long-term debt to plug its immediate capital expenditure needs.
The company has been roiled by news of a private well investment program for Chief Executive Aubrey McClendon, a hedge fund he ran on the side, his use of corporate jets and other potential long-term liabilities that may not have been fully revealed to investors.
The well program allowed McClendon to invest alongside the company, taking a private stake in oil and gas assets Chesapeake operated. McClendon borrowed more than $1 billion to cover his portion of the drilling costs.
In a regulatory filing Friday, Chesapeake said McClendon received $108 million for his share in wells sold between the beginning of 2011 and the end of April 2012.
The U.S. Securities and Exchange Commission has begun an informal inquiry into the well program, Chesapeake said.
Meanwhile, analysts also raised concerns about financing tools known as "volumetric production payments," or VPPs, that allow the company to repay cash advances from investors with production from its wells. While the tactic is a standard practice among some energy producers, the Wall Street Journal reported this week that Chesapeake's VPPs could produce $1.4 billion in long-term liability that the company hasn't disclosed.
"We need to know how much goes out and goes in when they transact a VPP," Sullivan said. "We don't know how the expenses relate. There is not a lot of detail in the structure of the transaction."
Chesapeake has said that it plans to reduce its debt to less than $9.5 billion by the end of 2012 but still plans to increase its production by 25 percent during that period, meaning that it will continue to need to deal with high capital expenditures.
"I don't think Chesapeake can just stop spending," Weiss said. "They have to drill a certain amount of acreage to protect their leases, or they will start to lose leases as well."
The longer prices remain depressed - they touched a 10-year low last month - the more difficult it becomes for Chesapeake to generate the cash it needs.
No comments:
Post a Comment