CHK Chesapeake Energy Corporation

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)

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