Driller’s Stock Sinking Deeper

WHEELING – Amid investor concerns ranging from unauthorized jet travel to questions over company debt, shares of Chesapeake Energy closed at $17.18 on the New York Stock Exchange on Thursday.

The value is less than half of the $35.75 price recorded on Aug. 2 – and is less than one-third of the $54.77 price from May 2008. The price declines also come as stock rating agency Moody’s lowered the investment outlook for Chesapeake to “negative.” Moody’s states that “Chesapeake hopes to raise at least $10 billion through asset sales this year.”

“The negative outlook reflects the escalating execution risk of Chesapeake’s plan for funding its large capital spending budget, rising leverage metrics and accompanying liquidity concerns,” said Pete Speer, Moody’s vice president.

Last week, Chesapeake reported a $71 million net loss to shareholders during the first three months of the year. This announcement came as company Chairman and Chief Executive Officer Aubrey McClendon said he would step down as chairman – and put an end to the program that allows him to take a 2.5 percent personal stake in the company’s drilling operations.

Via firms such as Jamestown Resources and Larchmont Resources, McClendon took his 2.5 percent stake in Ohio, Marshall and Brooke counties. Chesapeake is a publicly owned company traded on the NYSE. Conversely, Jamestown and Larchmont are privately held by McClendon. Documents show Jamestown and Larchmont gained interest in thousands of acres of Chesapeake leases signed by local mineral owners.

Although McClendon has agreed to end this practice by June 30, 2014, shareholder questions about his investment practices – and overall operation of Chesapeake – persist. In fact, published reports show the company’s largest stockholder, Southeastern Asset Management, this week noted Chesapeake should be open to offers to acquire all of the company’s stock.

Late Thursday, a published report stated that Chesapeake has taken on $1.4 billion worth of additional liabilities over the next decade through off-balance-sheet financial deals. The report states Chesapeake has made a number of deals with Wall Street banks requiring the driller to provide specific amounts of oil and natural gas each month until 2022, in exchange for cash payments.

Another report this week shows that an investor sued Chesapeake, accusing the driller of understating the cost of personal jet travel for top executives by as much as $10 million per year.

In the face of all these potential pitfalls, McClendon perseveres. Despite the $71 million net loss in the first quarter, he said Chesapeake is focused on drilling for more liquids-rich wet gas.

McClendon added that for the remainder of 2012, he expects capital expenditures to drop as the company reduces drilling in Pennsylvania’s dry gas areas – and reduces spending on new lease agreements.