Chesapeake to ramp down “land machine”

UPDATE below

Chesapeake Energy Corp. will continue to ramp down its massive land acquisition project and focus on harvesting its oil and natural gas assets, company officials said this morning in a conference call.

The Oklahoma City company organized the conference call in the wake of a late Friday announcement of a $3 billion short-term loan to give it some breathing room as jittery investors bid down the company’s shares.

Chesapeake’s first quarter regulatory filing on Friday afternoon made mention of some possible problems completing planned asset sales. The company has been talking about selling its interests in the Permian Basin in Texas and the Mississippian Lime in northern Oklahoma and southern Kansas. Investors shaved more than $1 billion in the company’s stock market value in the last hour of trading Friday afternoon as shares closed at $14.81.

But this morning, CEO Aubrey McClendon and Chief Financial Officer Nick Dell’Osso said investors took the wrong impression from the regulatory filing. Instead, they said the language referred to the company’s decision to pull or delay a volumetric production payment sale in Texas.

“The language in the 10-Q was actually referring to our decision last week to delay or even cancel VPP 11, which represents approximately $1.1 billion of potential sales proceeds,” McClendon said.

McClendon said the company instead has been working for the last few weeks on the $3 billion loan deal. He said it made more sense to go with that short-term loan than the VPP sale.

“Believe me, Chesapeake’s management team is very, very focused on getting these funding gap issues behind us once and for all and as early as possible,” McClendon said.

He said the company is undergoing what he called the fourth transition since its founding in 1989. Chesapeake will ramp down its land acquisition in shale plays and sell off what it considers as “non-core” assets. The company will instead focus on harvesting its oil, natural-gas liquids and natural gas assets in 10 key shale plays across the country.

“What lies ahead is far easier to manage and I’m confident will be far easier to invest in as well,” he said. “In addition, it has not been easy to make this strategy transition happen with gas prices at 10-year lows. However, we will complete this transition despite low gas prices. And please remember, today’s unsustainably low gas prices have created the environment for a major gas price recovery in 2013 and beyond.”

In early Monday trading, Chesapeake shares gained 8 percent to $15.97 as of 9:20 a.m.

UPDATE, 10:40 a.m.

Chesapeake executives also addressed the possible intervention of activist investor Carl Icahn, who the Wall Street Journal said late Sunday was buying up Chesapeake stock.

“If you’re referring to Carl Icahn, we’ve seen that and wouldn’t be surprised if Carl became a large shareholder,” McClendon said. “He did in 2010. Within six months, I believe, the stock went up 50 percent. He made I think over $500 million and he called me to thank me when it was all over. So, I have a good relationship with Carl, and if he comes in, I’m pretty confident that he will make a lot of money.”

Meanwhile, shares are up 7 percent to $15.90 (at 10:40 a.m.).

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