Billionaire investor Icahn may buy Chesapeake stock
Growing numbers of Chesapeake Energy rigs could soon be assembling atop the region's Marcellus and Utica shale regions as part of the debt-heavy company's latest plan to increase drilling and close an enormous funding gap that has hurt share prices in recent weeks, executives said Monday.
And not a moment too soon. The Wall Street Journal reported Monday that investor Carl Icahn is thought to have purchased a significant stake in the company, as a first step toward personally retooling the embattled Oklahoma driller.
The latest developments all arose Monday in yet another conference call with skittish shareholders, this one prompted by a $3 billion emergency loan from Wall Street. As he has done on several similar calls in the past two weeks, CEO Aubrey McClendon assured investors that a shift toward certain shale formations signaled a new day for Chesapeake as it tries to close a several-billion-dollar cash gap brought on by intense leveraging and layers of loans.
The company's potential savior: liquids-rich regions like those found in Appalachia, which contain valuable natural gas liquids such as ethane and propane that have been immune to plummeting natural gas prices.
The new loan, announced late Friday, provides Chesapeake with much-needed financial liquidity that Mr. McClendon said will help fund a "transition" to focus less on grabbing land, and more on actually developing it.
Monday's early-morning conference call with investors still might have been too little, too late. Chesapeake's anemic shares responded well Monday -- closing at $15.52, up 71 cents -- but it wasn't clear whether that response was to the news on the call or to reports that Mr. Icahn was getting involved.
The high-profile investor was seen by some as a white knight -- or at least, the surest way toward a McClendon-free Chesapeake.
For his part, Mr. Icahn, a billionaire financier whose portfolio has included companies as wide-ranging as RJR Nabisco to Marvel Comics, stayed mum on the Chesapeake rumors, and formal filings of any stock purchases may not appear for several days.
One of Wall Street's most familiar faces, Mr. Icahn has been known to purchase shares at bargain-basement prices, then demand a management or strategy change that causes shares to rise and allows him to sell his stake at a profit.
He last made a scene in the Pittsburgh region in 2004, when he acquired a 9.8 percent stake and threatened to unseat directors at Mylan Laboratories in Canonsburg because he was displeased with plans to take over King Pharmaceuticals. Mylan eventually decided against the acquisition, saying it fell apart because the parties failed to reach an agreement, and not because of pressure from Mr. Icahn.
Meanwhile, Mr. McClendon was busy explaining to investors Monday that the shift toward liquids-rich shale formations is the fourth transition at Chesapeake since its founding in 1989, and signals a move "from a strategy of asset capture to a strategy of asset harvest."
That harvesting will include the vast amounts of acreage the company has acquired at significant cost in Ohio over the past couple years.
Chesapeake became the dominant driller of the Marcellus Shale in Pennsylvania through an aggressive series of land swaps and flips, often financed through complex loan arrangements and joint ventures.
The company's lease acquisition budget for 2013 is being reduced by 90 percent from the year prior, said Mr. McClendon.
"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," he said.
The $3 billion Goldman Sachs loan comes with an interest rate of 8.5 percent. If Chesapeake fails to pay back the loan by Jan. 1, 2013, that interest rate jumps to 11.5 percent.
All of Mr. McClendon's assurances did little to calm his angriest critics, who still called for his ouster as company CEO on Monday. Not long ago, he gave up his position as chairman after concerns were raised about his personal stakes in company wells.
London-based hedge fund Noster Capital owns 250,000 Chesapeake shares and sent an open letter to the board Monday calling for Mr. McClendon to be fired and kept on as an unpaid adviser.
Analysts said a strategic focusing on liquids wasn't foolproof, because overdevelopment of those commodities could lead to the plummeting prices similar to those seen in regular natural gas.
"What happens if [natural gas liquids] or oil go down?" said Mark Hanson, a Chicago-based analyst at Morningstar. "Some see 2013 as being the year that you might see markets like ethane and propane see some softness."
During the call with investors, Mr. McClendon didn't discourage talk that Mr. Icahn might be entering the playing field, perhaps out of confidence or perhaps because he knew murmurs of "Icahn" can bolster stock prices.
"If he comes in, I'm pretty confident he'll make a lot of money," said Mr. McClendon.
First Published May 15, 2012 12:00 am