UPDATE 3-Chesapeake Energy cuts cash, spending outlook
(Adds details from analysts' meeting, closing stock price)
By Anna Driver
HOUSTON, Oct 15 (Reuters) - Chesapeake Energy Corp (CHK.N) cut its cash flow outlook for the next two years and said on Wednesday it would further reduce spending in response to the global financial crisis and lower natural gas prices.
Chesapeake has cut its budget for the acquisition of new acreage in 2009 and 2010 and trimmed the amount it plans to spend on drilling, according to a filing with the U.S. Securities and Exchange commission.
The highly leveraged U.S. company had planned to spend as much as $2.3 billion acquiring drilling rights next year.
This is the third time since Sept. 22 that Chesapeake has adjusted its financial forecasts and announced plans to cut capital spending.
Energy companies like Chesapeake that have overspent cashflow and relied on capital markets to finance acreage acquisitions and drilling programs have been hit hard by the credit crisis as sources of financing are harder to find and more expensive.
That model has left some investors unnerved about the company's plans to raise cash near-term.
Executives sought to offer reassurance at the company's analysts' meeting, even as Chesapeake's shares plummeted 24 percent.
"We have plenty of cash today and will continue to build cash through the quarter," Chief Executive Aubrey McClendon told investors in remarks broadcast over the Internet. He said the company would closely watch its financial situation and cut capital spending as needed.
Chesapeake said it now expects total cash inflows of about $7.8 billion to $9 billion in 2009, down from its prior forecast for about $9.9 billion to $11.5 billion. For 2010, the company sees cash inflow of $8.2 billion to $9.5 billion, down from $9.2 billion to $10.8 billion, according to a filing with the SEC.
A 50 percent decline in natural gas futures from July highs has not helped the outlook for U.S. onshore exploration and production companies, some of which ramped up drilling plans to capitalize on high commodity prices.
But the credit crisis will likely lead to an "enormous" decline in the number of rigs working in the United States, and the supply problem that caused gas prices to tumble will likely start turning around in late 2009 and early 2010, McClendon said.
Chesapeake plans to generate as much as $3 billion cash in the fourth quarter from the sales of acreage and production. Last week, the company said it had used the rest of its credit facility and now had $1.1 billion in cash on hand.
The company is negotiating for a joint venture partner for some of its acreage in the Marcellus Shale as part of its plans to raise capital. That deal, expected to close soon, will likely be with a "much larger company," McClendon told analysts.
For example in September, Chesapeake agreed to sell a 25 percent interest in its Fayetteville Shale assets in Arkansas for $1.9 billion.
Chesapeake's shares closed down 24.28 percent, or $5.24, at $16.34 on the New York Stock Exchange on Wednesday, underperforming a 15 percent drop in the American Stock Exchange index of natural gas companies .XNG. (Reporting by Anna Driver in Houston, editing by Dave Zimmerman, Richard Chang)
