Chesapeake says it has no plans to pursue bankruptcy

Chesapeake Energy Corp.said it has no plans to seek bankruptcy protection, dismissing a report that wiped out half the U.S. natural gas driller’s value.

Kirkland & Ellis has served as one of Chesapeake’s counsel since 2010 and continues to advise the company as it seeks to further strengthen its balance sheet following its recent debt exchange, Chesapeake said in a statement Monday. The company’s shares dropped a record 51 percent after Debtwire reported that Chesapeake retained the law firm to help restructure a $9.8 billion debt load. The loss was pared to 24 percent after the company’s statement.

Burdened with a debt load eight times larger than its market value, Chesapeake has been canceling drilling projects, trimming its workforce and closing offices to slow the rate at which it burns through cash. Gas, which accounts for about 80 percent of Chesapeake’s production, has averaged about $2.56 per million British thermal units during the past year, down 38 percent from a year earlier.

Chesapeake is the latest U.S. shale driller to flirt with collapse as a crushing glut of gas and crude renders companies increasingly desperate to avoid insolvency. Houston-based Halcon Resources Corp, retained the Weil, Gotschal law firm to explore bankruptcy, reported on Feb. 5, citing a person it didn’t identify. Chesapeake and Halcon both suspended dividend payouts on preferred shares last month.

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Chesapeake, which pumps more U.S. gas than any driller other than Exxon Mobil, has $1.3 billion in debts maturing by the end of 2017. Analysts expect Chesapeake to have a cash shortfall of more than $1 billion over the next two years.

The shares were trading at $2.32 at 11:47 a.m., after sliding the most since their debut in 1993 and touching $1.50. Chesapeake will post a second consecutive annual loss this year as an oversupply of North American gas weighs on prices and erodes cash flows the company needs to pay its debts, according to forecasts compiled by Bloomberg.

Chesapeake is scheduled to disclose fourth-quarter and full-year 2015 results on Feb. 24. A voice mail and email left with the company’s media relations office weren’t immediately returned. Kate Slaasted and Olivia Clarke, spokeswomen for Kirkland & Ellis, didn’t immediately respond to messages seeking comments.

The company’s bonds led losses among high-yield debt on Monday. Chesapeake’s notes due March 2016 tumbled by a record to 74.5 cents, from 95 cents last week, while its bonds maturing in 2017 fell to an all-time low at 34 cents.

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Standard & Poor’s last month cut Chesapeake’s credit-rating to “CCC+” with a negative outlook on assumptions that oil and gas prices will remain weak. The company’s debt leverage is unsustainable, S&P said.

The company was the worst performer on the Standard & Poor’s 500 Index on Monday.