WSJ Finds More Than $1 Billion In Previously-Unreported Chesapeake Liabilities

We’re a bit late with this, but The Wall Street Journal provides the latest installment in the ongoing “drip-drip-drip” reporting on Chesapeake Energy CEO Aubrey McClendon.
Hours after our friends at Pipeline pointed out McClendon had been borrowing money against West Virginia land that’s poorly-suited for natural gas drilling, the WSJ published a story claiming the Oklahoma-based company faces $1.4 billion in previously-unreported liabilities. That’s partially due to the fact the company has continued to spent a lot of money, even as the price of natural gas has plummeted. From the report:

The company has been in the forefront of the recent boom in U.S. energy production. It has unlocked gas and, more recently, oil in shale-rock formations with drilling techniques including horizontal drilling and hydraulic fracturing, or fracking. But that has contributed to a glut of natural gas that has driven the price of the fuel down to about $2.32 per million British thermal units, near lows for the decade.
As Chesapeake’s revenues have shrunk along with gas prices, it has continued to spend billions to lease new acreage and drill new wells, leaving it with a projected gap of $10 billion between operational cash flow and its spending and debt-reduction plans. The company reported a $71 million net loss in the first quarter, and said it spent $2.51 billion more on drilling wells and leasing property than it brought in from its operational cash flow.
Asset sales, VPPs and other off-balance-sheet debts have helped cover those gaps for several years, but their size, complexity and cost are raising concerns. On Wednesday, Moody’s Investors Service lowered to “negative” the outlook on Chesapeake’s $12 billion in rated, on-the-books debt, in part because it said the VPPs and other deals have raised total debt to $23.6 billion. Chesapeake disagrees that the VPPs are debt.

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