Saturday, May 22, 2010

Chesapeake Energy (NYSE:CHK) Increases Debt to Retain Leases

Even though Chesapeake Energy (NYSE:CHK) CEO Aubrey McClendon has recently said the company wouldn't go into deeper debt to raise capital, they once again have changed their minds and reversed direction, as they've decided to issue $1.7 billion in preferred convertible shares to raise the money.

This pretty much deja vous for the company, as the almost exact reasoning behind this debt has been stated in the past, as the debt will be used to reduce debt. Sounds like the government in many ways.

One other way of raising capital is through the sale of some of its Marcellus Shale assets, which will evidently also be used to pay down debt to the tune of $3.5 billion.

What is left over is targeted for investing in more liquid gas and oil assets. As I said, deja vous.

The company has been brought to this place because of the increased supply of natural gas which is pushing prices down, as well as the large number of acquisitions which led to the debt in the first place.

If it didn't access capital, which the lower natural gas prices can't buy, they could lose their drilling leases, which would happen if they quit drilling.

Consequently, the company will have a dilution of their shares which will cause share price to fall.

No comments: