Chesapeake Energy Defies Skeptics

NEW YORK (THE WALL STREET JOURNAL via Dow Jones Newswires), Jan. 6, 2009

Say what you will about Chesapeake Energy Corp. (CHK), but the nation's top natural-gas producer knows how to get a deal done.

The Oklahoma City company capped a busy 2008 with the $412 million sale of natural-gas production in Oklahoma and Arkansas to Argonaut Private Equity. Goldman Sachs Group provided financing.

The deal is something of a coup for outspoken Chesapeake chief Aubrey McClendon, who had repeatedly promised skeptical investors that the deal would get done by the end of the year.

If that sounds familiar, it should. Chesapeake spent much of the past five months doing deals that few thought possible. Some highlights: two deals with BP PLC (BP) for a combined $3.6 billion; a new $460 million bank line announced during the worst of the credit crunch; and a $3.4 billion asset sale to Norwegian oil giant StatoilHydro (STO). Total value of deals this year: roughly $12 billion.

"There are still skeptics out there, and we keep proving them wrong," Chesapeake spokesman Jeff Mobley said Monday.

Of course, those skeptics could note that as recently as last month, Chesapeake had hoped to get about $450 million from its most recent deal. And investors wouldn't have been sweating over Chesapeake's ability to get these deals done if the company had spent a bit less during the heady days of soaring energy prices. (J.P. Morgan analyst Joseph Allman last month wrote that Chesapeake "spent money like a drunken sailor (no offense to drunken sailors)" -- and that was in a note upgrading the stock.)

Still, few investors were complaining when Chesapeake announced the Argonaut deal. Shares rose nearly 5% Monday to $18.13, the highest close since November.

One hopes the celebratory drinks were on Ralph Eads, chairman of Jefferies Randall & Dewey and a long-time friend of McClendon's. The energy-banking wing of Jefferies & Co. has advised Chesapeake on at least $7 billion of deals in the past year, including this one.

Argonaut, by the way, is the private-equity vehicle of billionaire George Kaiser. Kaiser had a busy end of the year; he also helped out his friend and fellow Oklahoman Tom Ward, chairman and CEO of SandRidge Energy Inc. (SD), by buying $50 million of Ward's SandRidge shares. An added bit of trivia: Ward co-founded Chesapeake with McClendon in 1989.  

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