Chesapeake Says It Doesn't Plan to Pursue Bankruptcy -- 2nd Update
February 08 2016 - 05:19PM
Dow Jones News
By Timothy Puko and Erin Ailworth
Chesapeake Energy Corp. said Monday that it "has no plans to
pursue bankruptcy" after a report intensified such fears, and its
share price fell by half in early trading.
The report also sent shares of another stressed energy firm,
Williams Cos., and other pipeline companies tumbling.
The latest tremors come from a world-wide collapse in energy
prices and concern over the fate of a company that was a pioneer of
the U.S. oil-and-gas boom.
A Debtwire report said Chesapeake retained Kirkland & Ellis
LLP to help with debt and restructuring. Chesapeake responded by
issuing a statement saying it "has no plans to pursue
bankruptcy."
It said Kirkland & Ellis has been working with the company
since 2010 and "continues to advise the company as it seeks to
further strengthen its balance sheet following its recent debt
exchange." A Chesapeake spokesman declined to elaborate
further.
Shares of Chesapeake dropped by more than half but recovered
some ground following the company's statement and closed 33% lower
on the New York Stock Exchange Monday.
The Wall Street Journal reported in December that Chesapeake was
working with restructuring advisers at Evercore Partners Inc. to
shore up its balance sheet as commodity prices extend their
decline, citing people familiar with the matter. The Evercore
bankers are advising the natural-gas producer on potential measures
to reduce its $11.6 billion debt load, such as exchanging existing
bonds at a discount for new securities or selling assets, the
people said.
Once a Wall Street darling, Chesapeake has struggled under a
heavy debt load incurred to finance oil and gas purchases made
under the direction of Chesapeake's founder and former head, Aubrey
McClendon. Activist shareholders forced out Mr. McClendon in 2013
and installed a new chief executive, Doug Lawler, who has been
trying to right the ship even as natural-gas and crude-oil prices
remain low. The company has posted a string of quarterly
losses.
Chesapeake's woes rippled to pipeline companies Williams and
Energy Transfer Equity LP, which are trying to merge. Last year,
Chesapeake reworked some expensive natural-gas transportation
contracts it had with Williams, and had been hoping to renegotiate
others.
About a fifth of the revenue at Williams comes from processing
and shipping the gas and oil Chesapeake produces, according to
Fitch Ratings, which downgraded the ratings of both companies in
the past two months. Williams shares closed 35% lower, while Energy
Transfer Equity lost 41%.
Williams declined to comment.
The dive is "a warning shot" for many, said Jay Rhame, who
co-manages $2.5 billion in utilities and energy infrastructure at
Reaves Asset Management, a Williams shareholder. There are many
debt-laden production companies that will have to face this same
process and turmoil, he said. And the companies that process and
ship that oil and gas could get dragged down with the producers
they rely on for revenue.
"Everyone's looking at it right now and saying 'How much are
these contracts worth and who else has exposure?' It's obviously
not only Chesapeake," Mr. Rhame said. Reaves is holding its
Williams stock for now, expecting a turnaround once oversupplied
commodity markets start to rebalance, he said.
Several other energy companies with big pipeline operations have
also taken sharp losses Monday. ONEOK Inc., Kinder Morgan Inc. and
Marathon Petroleum Corp. were down at least 4%.
Write to Timothy Puko at tim.puko@wsj.com and Erin Ailworth at
Erin.Ailworth@wsj.com
(END) Dow Jones Newswires
February 08, 2016 17:04 ET (22:04 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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