WHEELING - A $4 billion loan from global investment firm Goldman Sachs should give Chesapeake Energy the ability to catch up on its debts, but the Oklahoma City-based driller's stock value continues to drop.
Peter Holloway, senior vice president of the Wheeling-based investment firm Hazlett, Burt & Watson, said Chesapeake's biggest problem now may be that company leaders are "taking their eyes off the ball" because of having to deal with so many financial issues at the same time. These issues are highlighted by Chairman and Chief Executive Officer Aubrey McClendon's dealings regarding the personal 2.5 percent stake he has taken in the company's drilling operations in Marshall, Ohio and Brooke counties.
"The management and the board (of directors) are not focused on the business they way they should be," said Holloway. "This could end up hurting them."
Oil and natural gas drillers work at a site in Marshall County.
Shares of Chesapeake Energy closed at $14.65 on the New York Stock Exchange Tuesday. The value is down from $17.18 just last week, 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."
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. 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.
The $4 billion loan from Goldman Sachs - which Chesapeake expects to repay in full by the end of the year by using a portion of proceeds from asset sales - is a tool Holloway believes Chesapeake will use to pay off higher interest loans.
"All they are really doing is refinancing other loans, most likely at a lower rate. This is different from the Aubrey McClendon loans in that this is a loan to the company itself," said Holloway, noting the loans McClendon took against the local Chesapeake operations in the names of Jamestown and Larchmont.
Holloway said Goldman Sachs would probably not loan this kind of money to Chesapeake if officials did not deem Chesapeake "credit worthy," adding of Goldman, "They've got the cash."
Chesapeake recently reported a $71 million net loss to shareholders during the first three months of the year. This announcement came as McClendon said he would step down as chairman - and put an end to the program that allows him to take the 2.5 percent personal stake. Though McClendon has agreed to end this practice by June 30, 2014, shareholder questions about his investment practices - and overall operation of Chesapeake - persist. These questions range from unauthorized jet travel to proposals to sell the entire company.
Holloway said those who have signed leases with Chesapeake will probably not be directly impacted by the company's current financial issues, noting the driller would still need to meet its contractual obligations.
Regarding the loan from Goldman, McClendon said it will "... give us greatly enhanced financial flexibility to execute our planned asset sales from a position of strength and to complete our transformation from a natural gas-focused producer to a more balanced liquids-focused producer."
Information provided by Chesapeake shows that drilling in the wet gas found in West Virginia's Northern Panhandle - loaded with ethane, propane, butane and pentane - has proven up to three times more profitable than drilling in Pennsylvania's dry gas. For a typical dry gas well, the company gains an average of $13,000 in revenue per day. However, the company gains up to $38,800 in revenue every day for wet wells, company statistics show.