Chesapeake Seeks to Raise $1.8bn

Chesapeake Energy Corp, the nation's largest producer of natural gas, seeks to raise up to $1.8 billion through common stock sales in an effort to fund its drilling and exploration activities and mitigate the impact of lower natural gas prices on cash flow.

In two filings with the Securities and Exchange Commission late Wednesday, the company said it will issue shares worth as much as $1 billion before fees and also registered 50 million shares worth at most $791 million for potential sale.

Oklahoma City, Okla.-based Chesapeake said it will use proceeds from the $1 billion offering for general corporate purposes, including fund exploration, development and other capital expenditures.

The move would dilute holdings of shareholders, who already suffered through a substantial decline in Chesapeake's stock price this year. Shares closed at $20.24 on Wednesday, off 73 percent from the stock's $74 52-week high set this summer.

But the company said cash flow, borrowings and cash on hand have not been enough to pay for capital expenditures.

Chesapeake has used up the remaining financing available under its $3.5 billion bank credit facility and only $251 million is left of another $460 million credit line. Credit markets remain tight with financial institutions under duress.

While cash flow from operations had risen in the first nine months of 2008 compared to a year ago, it's heavily dependent on natural gas prices, which have fallen off sharply.

"Changes in market prices for natural gas and oil directly impact the level of our cash flow from operations," the company said in a filing.

Chesapeake has hedged about 73 percent of its remaining natural gas and oil reserves in 2008 and 67 percent of expected production in 2009 at average prices of $9.09 and $8.65 per thousand cubic feet equivalent (Mcfe), respectively. In Nymex trading Thursday, natural gas for January delivery slid 9.7 cents to $6.781 per 1,000 cubic feet.

The company has cut back on its capital expenditure budget through 2010 in light of global economic distress and concerns about oversupply of natural gas in the U.S. market.

Chesapeake said it's negotiating with several "significant" leaseholders to acquire leaseholds at reduced prices. In the filing, it said some leaseholders may agree to accept common stock for all or part of the deal.

The company has struck several multibillion-dollar transactions recently.

In September, BP PLC's U.S. arm said it plans to buy a 25 percent stake in Chesapeake's Fayetteville Shale assets in Arkansas for $1.9 billion. A month earlier, BP said it had bought similar Chesapeake assets in Oklahoma for $1.7 billion.

Earlier this month, Chesapeake sold even more natural gas assets to Norwegian energy company StatoilHydro for $3.38 billion.

Author: Jo Amey