=DJ Chesapeake Energy Down As Credit Turmoil Damps Growth
By Christine Buurma Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Shares of Chesapeake Energy Corp. (CHK) fell 16% Friday, extending this week's steep slide amid the broad selloff in equities, and on concerns over the company's exposure to the credit crisis and slowing growth.
The Oklahoma City-based natural gas producer has borrowed heavily to fund land purchases and drilling amid a boom in gas production in Texas, Louisiana, Pennsylvania and elsewhere. This has spooked investors as the credit markets have frozen, and exacerbated a steep drop in Chesapeake's market value as the price of gas has dropped by half since early July. In response, Chesapeake has cut its spending and drilling plans, and is scrambling to sell some assets.
Analysts said unsubstantiated rumors of liquidity problems Thursday sent the cost of insuring Chesapeake's debt soaring, and hit the company's shares. However, these analysts added that the company doesn't appear to be facing any immediate cash crunch.
"Bottom line - unless there is some hidden situation that has developed in the past week, CHK will weather this storm," Tudor Pickering Holt analysts wrote in a note Friday. They noted that several service companies told them they are being paid "promptly and currently" by Chesapeake.
Chesapeake Chief Executive Aubrey McClendon told The Wall Street Journal that the company expects to end the year with $5 billion to $6 billion in cash, enough to keep growing without tapping the capital markets.
"We spoke with Chesapeake management following Thursday's 21% stock sell-off," wrote Jason Gammel, an equity analyst with Macquarie Research in New York, in a note to clients Friday. "We are satisfied following this conversation that Chesapeake remains liquid, still generating a strong level of earnings and cashflow and remains well within the provisions of its debt covenants."
The difficult credit environment could make it harder for Chesapeake to raise capital by selling assets. Chesapeake is trying to sell minority stakes in the company's midstream assets and in its properties in Pennsylvania's Marcellus natural gas shale. The company also plans to sell a so-called volumetric production payment, which entitles the purchaser to receive scheduled quantities of natural gas from Chesapeake's interests in producing wells.
Chesapeake has aggressively purchased leases for millions of acres in natural gas shale formations over the past few years, at one point planning to spend $18 billion in 2008, more than three times the company's operating cash flow. But falling natural gas prices have led the company to scale back its capital expenditures.
Chesapeake shares were recently down $2.83, or $16, at $14.88, after falling 21% on Thursday. Shares are down 78% from their 52-week intraday high of $74 hit on July 2.
-By Christine Buurma, Dow Jones Newswires; 201-938-2061; christine.buurma@dowjones.com
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