UPDATE: Chesapeake Sees $1.8 Billion Charge On Lower Commodity Prices In 4Q
January 27 2009 - 8:26PM
Dow Jones News
Chesapeake Energy Corp. (CHK) will record a $1.8 billion
writedown on its natural gas and oil assets because of a drop in
energy prices.
Oklahoma City-based Chesapeake, the largest producer of U.S.
natural gas by volume, joins oil major ConocoPhillips (COP) and
refiner Valero Energy Corp. (VLO) in writing down assets that are
no longer worth as much as once thought.
Earlier this month, Conoco Phillips said it will take several
one-time charges totaling $34 billion in the fourth quarter and
Valero (VLO) said Tuesday it will record a $4.1 billion writedown
of goodwill on assets acquired when profit margins were bigger.
In a separate announcement, Chesapeake also said it would make a
public offering of $500 million in senior notes and apply the
proceeds to pay down bank debt.
Chesapeake will also adjust its hedging position to protect
against declines in natural gas prices. It modified its hedging
position from December and plans to eliminate virtually all 2009
"knockout" swaps. The company said it may decrease or increase its
hedging position, depending on changes in the natural gas and oil
futures markets.
"We will continue to carefully manage our corporate liquidity
and capital spending levels to protect value and safely navigate
the current challenging economic environment," Aubrey McClendon,
chief executive of Chesapeake, said in a statement.
In recent months, Chesapeake has seen its share price plummet
along with the steep decline in natural gas prices. Natural gas
prices have fallen more than 65% from a July peak of $13.694 a
million British thermal units. Shares of the energy company have
followed suit, falling from a summer peak of $74 apiece. Shares
were down 5.37% to $14.80 in after hours trading.
In response to falling commodity prices and tightening credit
markets, Chesapeake cut its production-growth forecast, idled rigs,
pared back spending and drew down its credit facility.
The company also reported Tuesday that its fourth quarter daily
production of natural gas equivalent averaged 2.32 billion cubic
feet, flat from the third quarter and an increase of 4% from a year
ago. The average daily production consisted of 2.13 billion cubic
feet of natural gas and 30,956 barrels of oil and natural gas
liquids.
Chesapeake estimates year-end proven reserves totaled 12.1
trillion cubic feet of natural gas equivalent, an increase of 11%
from last year.
-By Jason Womack, Dow Jones Newswires; 713-547-9201;
jason.womack@dowjones.com
-By John Kell, Dow Jones Newswires; 201-938-5285;
john.kell@dowjones.com
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