Chesapeake gets breathing room with $6.9 billion asset sale

Wed Sep 12, 2012 5:21pm EDT
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By Ernest Scheyder and Michael Erman

(Reuters) - Chesapeake Energy Corp's $6.9 billion deal to sell gas fields and pipelines should help stabilize the troubled company for the rest of the year and give it time to figure out how it will fund 2013 operations.

With agreements to sell most of its assets in the Permian Basin to Royal Dutch Shell Plc and Chevron Corp, as well as nearly all of its remaining infrastructure network, Chesapeake will now have to rely more heavily on a smaller number of assets to grow.

Chief Executive Aubrey McClendon built Chesapeake into the second-largest natural gas producer in the United States through aggressive land purchases and development of so-called unconventional resources around the country. But the company has been struggling recently due to slumping natural gas prices, as well as controversial land deals in Michigan and personal loans taken out by McClendon.

Chesapeake has been selling assets this year to meet an estimated $10 billion funding gap. It plans to use some of the proceeds from Wednesday's announcement to trim its $14.33 billion debt load by $4 billion. The company's market value is roughly $13.27 billion.

The deals keep the company afloat for 2012. Still, they do not significantly close the gap between the amount Chesapeake needs to spend in the future to maintain its current growth and its projected revenue.

Chesapeake will need to fill a funding gap of at least $4 billion in 2013, Barclays analysts estimate.

"They are fine from a funding point of view for 2012," said Morningstar analyst Mark Hanson, who estimates the company will finish the year with a surplus.

He estimated that based on the company's current growth plan, "they are in the hole already for 2013 ... They probably need to sell a not insignificant amount of assets in 2013 to plug that gap."   Continued...

Chesapeake Energy Corporation's 50 acre campus is seen in Oklahoma City, Oklahoma, April 17, 2012. REUTERS/Steve Sisney