By Ben Casselman
Of THE WALL STREET JOURNAL
Natural-gas producer Chesapeake Energy Corp. (CHK) will issue
$500 million in long-term debt, in what analysts viewed as an
effort to reduce its dependence on suddenly shaky bank
financing.
Chesapeake declined to comment on the announcement, but in a
press release Tuesday evening the company said it was borrowing the
money to pay off some of its bank debt. Oklahoma City-based
Chesapeake withdrew its entire $3.5 billion bank line of credit
when credit markets froze up in October to ensure that it would
have access to the cash.
(This story and related background material will be available on
The Wall Street Journal Web site, WSJ.com.)
But Chesapeake's bank debt, like that of many smaller oil and
gas producers, is secured by the value of its undrilled gas
reserves, which has plummeted along with the price of natural gas.
With banks growing more cautious about lending due to the global
financial crisis, many companies worry their banks will cut their
credit lines when they come up for renewal, Subash Chandra, an
analyst with Jefferies & Co. in New York, said.
To avoid a cash crunch if that happens, other companies,
including Petrohawk Energy Corp. and Whiting Petroleum Corp. have
also issued long-term debt in recent days. .
Chesapeake, the top U.S. gas producer by volume, has been forced
to slash spending in recent months as gas prices have fallen. The
company said Tuesday it would take a charge of $1.8 billion in the
fourth quarter due to the declining value of its gas reserves and
other assets. But Chesapeake said it had nonetheless increased its
daily gas production by 18% in 2008, to 2.3 billion cubic feet a
day, and had increased its in-ground reserves by 11%, to 12.1
trillion cubic feet.
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