Chesapeake sells off assets to cover $500 million debt

Chesapeake Energy said it will pay off the remainder of a half-billion dollar debt that’s coming due in three weeks after raising more than twice as much as planned from asset sales. Shares soared 15 percent.

The company has signed agreements to divest $700 million in gas fields and other assets, overshooting the $200 million to $300 million target communicated to investors in December, the Oklahoma City-based shale driller said Wednesday. The company plans to sell another $500 million to $1 billion in properties this year while shutting down at least half the drilling rigs it has under contract.

The company, once the face of the Barnett Shale drilling boom, faces hundreds of lawsuits challenging how it paid royalties to landowners. In Fort Worth, the McDonald Law Firm has filed 435 lawsuits against the company covering 22,443 plaintiffs, according to court documents.

Chesapeake is seeking to move trials in the first 10 McDonald cases to Houston, saying that his “no-holds-barred” campaign on billboards, websites and community meetings to seek clients has “poisoned the jury pools.” McDonald has accused Chesapeake of “stealing” from landowners by shipping the gas to market through affiliate companies and deducting unreasonable costs.

Chesapeake’s “tactical focus areas” for the year include selling assets to raise cash and repurchasing bonds, Chief Executive Officer Doug Lawler said. About 70 percent of this year’s capital spending will be invested in finishing already-drilled wells rather than starting new ones, he said — a less expensive way to boost output.

Shares of Chesapeake (ticker: CHK) ended at $2.69, up 50 cents, or 22.83 percent.

Chesapeake, which pumps more gas than any U.S. producer except Exxon Mobil, has been shrinking its workforce, restructuring debt, closing offices and selling parts of its portfolio to raise cash. The asset sales announced on Wednesday may ease concern among bondholders and analysts about Chesapeake’s ability to manage a debt burden described earlier this month by Standard & Poor’s as “unsustainable.”

Four Point Energy in Denver announced Wednesday that it is paying $385 million for about 473,000 net acres in 15 counties in western Oklahoma and the Texas Panhandle. On Tuesday, Haymaker Resources in Houston said it was paying $128 million for mineral interests associated with 8,500 wells across 24 states. The majority of the production comes from the Mid-Continent, Haynesville and Appalachia regions.

Chesapeake swung to a fourth-quarter net loss of $2.2 billion, or $3.36 a share, compared with a profit of $639 million, or 81 cents, a year earlier, according to the statement. The results were on target with theexpected per- share loss of 16 cents based on the average estimate of 29 analysts in a Bloomberg survey.

The gas producer said it’s budgeting spending of $1.3 billion to $1.8 billion in 2016, 57 percent less than its spending last year. Chesapeake expects to reduce the number of drilling rigs working its fields to between four and seven this year, down from 14 in the fourth quarter. As recently as late 2014, the company had 67 rigs in operation.

Staff writer Max B. Baker contritubed to this story.

This story was originally published February 24, 2016 at 10:13 AM with the headline "Chesapeake sells off assets to cover $500 million debt."