Chesapeake aims to cut debt, spending amid oil slump

(Reuters) - Chesapeake Energy Corp, the second largest U.S. natural gas producer, said it would make a debt payment due in March and that it planned to sell more assets, slash spending in half and renegotiate pipeline contracts as it aims to lower debt and improve liquidity amid collapsing energy prices.

Chesapeake Energy Corporation's 50 acre campus is seen in Oklahoma City, Oklahoma, on April 17, 2012. REUTERS/Steve Sisney

Investors sent shares of the battered company up 15 percent to $2.52 in morning New York Stock Exchange trading.

A slide of more than 70 percent in crude prices from highs over $100 a barrel and low natural gas prices have hit the heavily leveraged company hard. To weather the downturn, Chesapeake said it will cut spending more than 50 percent this year.

No job cuts were mentioned in Chesapeake’s latest moves but in September the company trimmed 740 employees, about 15 percent of its workforce.

Earlier this month, Chesapeake said it tapped legal counsel Kirkland & Ellis for advice as it seeks to strengthen its balance sheet with debt exchanges and other transactions, and that it had no plans for bankruptcy as some in the market have speculated.

On a conference call with analysts to discuss fourth-quarter results, Chesapeake’s chief financial officer Nick Dell’Osso also said the company has oil and gas assets it could pledge as collateral if needed as banks review its loans in the so-called re-determination season in April.

“We feel good about our ability to get through the re-determination season,” Dell’Osso said.

Chesapeake said it plans to sell assets worth $500 million to $1 billion this year and outlined a budget of $1.3 billion to $1.8 billion.

Chesapeake has a debt payment of about $500 million due in March, with at least another $1.3 billion coming due through 2018. The company had $9.5 billion in outstanding debt, more than $300 million in cash and a $4 billion credit facility as of Feb. 23.

Chesapeake CEO Doug Lawler also said it was aggressively renegotiating pipeline and processing contracts and that it had amended certain transportation agreements in Texas and Louisiana to free up more cash.

Oil and gas pipeline companies, including Williams Companies Inc, have contracts worth billions of dollars that might be at risk as low prices sap Chesapeake’s cash flow.

Chesapeake reported a net loss of $2.23 billion, or $3.36 per share, for the fourth quarter ended Dec. 31. It earned $586 million, or 81 cents per share, a year earlier.

Excluding impairment charges and other items, Chesapeake had a fourth-quarter loss of 16 cents per share. Analysts were expecting a loss of 17 cents, according to Thomson Reuters I/B/E/S.

Reporting by Amrutha Gayathri in Bengaluru and Anna Driver in Houston; Editing by Kirti Pandey and Bill Trott