Chesapeake Energy Jumps as Shale Gas Auction Accelerates

  • Company signed $470 million deal to sell Oklahoma assets
  • Secured-debt sales under consideration to boost liquidity

Chesapeake Energy Corp. surged after the shale gas explorer signed a deal to sell Oklahoma drilling rights to Newfield Exploration Co. for $470 million.

The deal brings total asset sales announced so far this year to $1.2 billion and more will follow by the end of September, the company said in a statement on Thursday. The Newfield agreement covers 42,000 acres, an area equivalent in size to Brooklyn, as well as 400 wells. Chesapeake shares rose as much as 15 percent and were up 4.3 percent to $5.89 at 12:17 a.m. in New York.

The latest transaction follows Chief Executive Officer Doug Lawler’s pledge in February to close on as much as $1.7 billion in asset sales by the end of 2016. Since his arrival at Chesapeake in 2013, he’s orchestrated more than $10 billion in property disposals, unwinding much of the empire constructed over a quarter century by his predecessor, the late Aubrey McClendon.

Chesapeake, a shale driller that pumps more U.S. gas than any company besides Exxon Mobil Corp., has been stung by tumbling energy prices and investor skepticism that it can shoulder its heavy debt load amid the downturn. Lawler slashed thousands of jobs, sold off gas fields, renegotiated pipeline fees and pledged more than 90 percent of Chesapeake’s assets as collateral to cope with shrinking cash flow and retain access to its line of credit.

Chesapeake has created some breathing room to deal with its $9.4 billion debt load, said David Tameron, an analyst at Wells Fargo & Co. in Denver. “We see enough liquidity to cover debt maturities through 2018,” he said in a note to clients on Thursday.

The company is considering selling new secured debt to raise cash, Chief Financial Officer Domenic Dell’Osso said during a conference call with analysts on Thursday. Chesapeake has been buying back its own corporate bonds at steep discounts, a cheap way of retiring debt, he has said.

Chesapeake’s 6.125 percent bonds maturing in 2021 climbed 11 percent to 59.565 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Earnings Results

The sale of drilling rights in an Oklahoma discovery known as the Stack overshadowed first-quarter results that included an $853 million writedown in the value of Chesapeake’s gas fields. The company’s net loss narrowed to $921 million, or $1.44 a share, from a loss of $3.74 billion, or $5.72, a year earlier, according to the statement. Excluding the writedown and other one-time items, the loss was 10 cents, narrower than the 11-cent average estimate of 30 analysts in a Bloomberg survey.

The current series of quarterly losses that began at the start of 2015 is the longest since Chesapeake’s 1993 debut as a publicly-traded company. Prior to this, the longest losing streak lasted for three quarters in 1997 and 1998, according to data compiled by Bloomberg.

Upon closing the Stack sale to Newfield, Chesapeake still will control drilling rights across a separate 52,000 acres of the discovery, Lawler said during the call.

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