Chesapeake Energy executing plan to monetize certain assets, fund capital expenditures through 2009

By Jennifer Lanning Drey

Portland, Ore., Feb. 22 - Chesapeake Energy Corp. has implemented multiple aspects of its previously announced financial plan to monetize latent balance sheet value and fully fund capital expenditures through at least 2009 without accessing public capital markets, the company reported Friday.

During the fourth quarter, the company received $1.1 billion for a sale related to Appalachian assets and plans to pursue additional monetization of similar properties in 2008 and 2009 for expected proceeds of about $2 billion.

The company's efforts to monetize its midstream natural gas assets outside of Appalachia are also well underway, Marcus C. Rowland, Chesapeake's chief financial officer, said Friday during a company conference call held to discuss fourth-quarter results.

Chesapeake is forming a private partnership to own a non-operating interest in the assets, which currently generate annualized cash flow from operating activities in excess of $150 million and are expected to grow substantially over at least the next three years. Chesapeake expects the transaction to close by the end of April, and the company plans to raise $1 billion in the first half of 2008 by selling a minority interest in the partnership.

Better looking balance sheet

Also during the fourth quarter, Chesapeake completed the conversion of its 5% and 6¼% preferred stock, thus reducing its outstanding preferred stock by about $1 billion, or 50%, Rowland reported.

"Some debt analysts and, obviously, the ratings agencies, have considered our preferred stocks to be somewhat debt-like in the past, depending on the exact nature of the preferred, and this should go a long way toward improving the balance sheet in their eyes, he said.

At Dec. 31, Chesapeake's long-term debt stood at $11 billion, according to its earnings release. The company's cash balance was $1.4 billion on the same date.

For the fourth quarter, Chesapeake generated operating cash flow of $1.3 billion, compared to $1.1 billion in the same period of 2006.

The company believes rising energy usage in the United States and high oil prices will drive value creation in the next two years, Aubrey K. McClendon, chief executive officer of Chesapeake, said during the call.

"Looking forward, we see many bullish factors that have developed and are evolving over time that lead us to conclude that natural gas prices may have upside in them during the next two years.

"I believe 2008 and 2009 will be the golden years of value creation for Chesapeake and other well-positioned [exploration and production] companies."

Chesapeake is an Oklahoma City-based independent producer of natural gas.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.