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Chesapeake Energy

Mish reports on Chesapeake Energy, Petrobras, and OPEC.  Courtesy of Mish, at Global Economic Trend Analysis.  

Chesapeake Energy, Largest US Natural Gas Producer, Runs Out Of Cash

YahooFinance is reporting Chesapeake Energy may sell $1.8B stock to get cash.

Chesapeake Energy Corp., the nation’s largest producer of natural gas, seeks to raise up to $1.8 billion through common stock sales in an effort to fund its drilling and exploration activities and mitigate the impact of lower natural gas prices on cash flow.

In two filings with the Securities and Exchange Commission late Wednesday, the company said it will issue shares worth as much as $1 billion before fees and also registered 50 million shares worth at most $791 million for potential sale.

Oklahoma City, Okla.-based Chesapeake said it will use proceeds from the $1 billion offering for general corporate purposes, including fund exploration, development and other capital expenditures.

The move would dilute holdings of shareholders, who already suffered through a substantial decline in Chesapeake’s stock price this year. Shares closed at $20.24 on Wednesday, off 73 percent from the stock’s $74 52-week high set this summer.

But the company said cash flow, borrowings and cash on hand have not been enough to pay for capital expenditures.

Chesapeake has used up the remaining financing available under its $3.5 billion bank credit facility and only $251 million is left of another $460 million credit line. Credit markets remain tight with financial institutions under duress.

CHK Daily Chart

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This is the same silliness we saw with banks and financials. The companies kept paying unsustainable dividends and buying back shares at ridiculous prices. They did not raise money when they could but rather when they were forced to.

Can anyone ever get this right?

Petrobras Cash Shortage

In Brazil, Petrobras Cash Shortage Led to Tax Loan.

Petroleo Brasileiro SA was forced to borrow 2 billion reais ($881 million) from Brazilian state-owned discount bank Caixa Economica Federal as it faced “momentary difficulty” paying taxes, Energy Minister Edison Lobao said.

Petrobras, as the state-controlled oil company is known, said record profit in the third quarter resulted in a 11.4 billion-real tax bill in October, about 5 percent more than the 10.8 billion reais of cash it had on hand at the end of September, the Rio de Janeiro-based company said in a note on the Brazilian security regulator’s Web site.

“There were taxes that Petrobras had to pay that they really shouldn’t have had to pay because they weren’t generated by operating profit but by the strengthening of the dollar,” Lobao told reporters in Brasilia. “The company had to take money out of its cash holding to pay the taxes.”

Petrobras, which has spent more than 20 billion reais on investment so far this year and paid $6.2 billion in dividends, may also have had to borrow money from state-controlled Banco do Brasil SA to meet its obligations, Senator Tasso Jereissati said in a telephone interview.

The cash-flow problems may also have forced Petrobras to delay payments to suppliers over the last 30 days, Jereissati said. Petrobras officials weren’t immediately available to respond to Jereissati’s comments.

Petrobras said about a third, or 3.5 billion reais, of its record 10.9 billion-real third-quarter profit was the result of a 19 percent increase in the value of the dollar against the real in the quarter.

Petrobras’s ability to generate cash and borrow may be further hurt by a 60 percent decline in the price of oil since reaching a high in July and the world credit crunch sparked by recent U.S. bank failures, Lucas Brendler, an energy analyst at Banco Geracao Futuro in Porto Alegre, Brazil, said yesterday.

OPEC Has All Options Open

In other energy news, OPEC Has All Options Open, Including Cut.

OPEC has all options open, including a cut in production, when it meets this weekend in Cairo, said Shokri Ghanem, chairman of Libya’s National Oil Corp.

“We have to look for the possibility of stabilizing the market,” Ghanem told reporters when he arrived at his hotel. “The whole financial market is in a shambles so prices may still go down more, but we are sure it’s going to rebound.”

The 13 members of OPEC, which supply more than 40 percent of the world’s oil, are meeting for the third time in as many months to discuss a further cut in production after crude prices plunged more than 60 percent from July’s all-time high of $147.27 a barrel.

The crude oil market is over-supplied, OPEC Secretary- General Abdalla el-Badri said today in an interview in Cairo. He declined to recommend a course of action, saying any decision concerning production quotas was up to ministers to take.

Oil demand is falling faster than expected, Hasan Qabazard, head of research at the group’s secrectariat, said in an interview in Cairo today.

Peak Oil vs. Falling Demand

In the battle between Peak Oil vs. Falling Demand, falling demand is clearly winning even though OPEC member Libya suggests "We are sure oil prices are going to rebound.”

If OPEC is so sure prices will rebound, exactly why is a production cut necessary and why are inventories at 5 year highs?

Mike "Mish" Shedlock


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