HOUSTON - Chesapeake Energy Corp. Chief Executive Aubrey McClendon apologized to investors for what he called "distractions" in the wake of news reports that revealed questionable financial activities by the CEO and put company stock prices on a roller coaster.
Chesapeake share prices have been pounded by a steady wave of bad news involving McClendon and the company he co-founded. Media reports have detailed McClendon's use of personal shares in company wells as collateral against about $1.4 billion in loans from companies with financial ties to Chesapeake. The revelations caused McClendon to step down from his position as board chairman and the company to terminate the benefits program that allowed McClendon to claim the well stakes.
On Wednesday, Reuters reported that McClendon had been the head of a $200 million hedge fund that traded in commodities while serving as Chesapeake CEO, a potential conflict of interest.
Meanwhile, credit rating agencies and stock analysts have cut their outlook on the natural gas giant because of its heavy debt, complicated financial dealings and low natural gas prices.
McClendon attempted to defuse some of criticism. The CEO said media reports contained "a great deal of misinformation" but did not elaborate on details.
"I am deeply sorry for all the distractions of the past two weeks," he said during the call with investors.
McClendon also said Chesapeake is on track in its shift away from natural gas and toward more profitable oil production, despite projecting in crude drilling over the next few years that has worried investors.
Chesapeake, the second-largest natural gas producer after Exxon Mobil Corp., has seen its revenues fall as a glut of natural gas has pushed prices to historic lows. In February, it forecast a drop in its natural gas production and crude oil and natural gas liquids, which are used as fuel and raw material for chemicals.
But in an updated two-year production forecast released Tuesday, the company said its natural gas production would remain flat while crude oil and NGL production would be nearly half from first-quarter 2012 levels. Chesapeake shares fell more than 10% after the company released the updated forecast after market close Tuesday.
Chesapeake Chief Executive Aubrey McClendon said the drop in liquids production would only be short term as the company sold assets in key production fields such as the Permian Basin to drive down debt. The company will be able to drill more wells on land it will still own in the Eagle Ford shale in south Texas, where the company is spending a third of its capital expenditure budget, the Mississippi Lime region in Kansas and Oklahoma, and other regions.
"The selling impacts 2012 and 2013 guidance, but it doesn't do anything to our outer-year targets--we'll simply drill more wells" McClendon said during a conference call with investors.
McClendon reiterated Chesapeake's goal to make $11.5 billion in asset sales and joint ventures in 2012 and bring the company's overall debt to $9.5 billion by the end of 2012. With natural gas prices at $2.50 a million British thermal unit, the company will have to "work harder" on asset sales to bring in enough money to pay down the debt, McClendon said.
Chesapeake Energy reported Tuesday a first quarter loss of $28 million on revenue of $2.42 billion, compared with a year-earlier loss of $162 million, missing analysts' targets.
Chesapeake expects to sell its Permian Basin oil and gas fields assets in West Texas in the third quarter, McClendon said. It also hopes to form joint ventures using its assets in the Mississippi Lime oil field in the next few months, and sell production rights to some of its assets in the Eagle Ford. It could also sell its oilfield services and midstream businesses.
Asset sales, an increase in natural gas prices to around $5 a million British thermal unit and increased oil production should bring Chesapeake $7 billion in cash flow by 2014, money that the company could then use for a share buyback, McClendon said.
Copyright (c) 2012 Dow Jones & Company, Inc.
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