Bloomberg News

Chesapeake Cash Crunch May Shrink as Gas Prices Rise 42%

May 18, 2012

Rising natural-gas prices have provided some relief to Chesapeake Energy Corp. (CHK:US), which has seen its shares plummet this year on management controversy and a looming cash-flow shortfall.

Gas rose to a 13-week high of $2.705 per million British thermal units on the New York Mercantile Exchange today. The fuel has gained 42 percent since touching a 10-year low last month of $1.902. Chesapeake, the second-largest U.S. gas producer, told investors on May 2 that $2 per million Btu gas prices would result in a loss this year, whereas at $3 the company would be profitable.

Chesapeake, based in Oklahoma City, rose (CHK:US) 6 percent to $14.36 at the close in New York. The shares are still down 36 percent this year after Chesapeake began a review of Chief Executive Officer Aubrey McClendon’s personal loans backed by stakes in company wells and said it may run out of cash as early as next year.

“Every penny in gas price helps,” Biju Perincheril, a New York-based analyst for Jefferies & Co., said today in an interview. Today’s gains increased the average gas price for the year to $2.406. Jefferies forecasts gas will average $2.75 this year, Perincheril said.

Gas prices will continue to rise until the summer and may reach as much as $3 per million British thermal units as companies continue to slow production and electricity producers switch from coal to gas, Michael A. Hall, a Denver-based analyst with Robert W. Baird & Co., said in an interview.

It’s unclear if the price increase will last long enough to help Chesapeake and other gas producers with their cash crunch, Hall said. He expects prices to rise to $3.75 in 2013.

Futures contracts show gas prices averaging $3.656 in 2013.

To contact the reporter on this story: Jim Polson in New York at

To contact the editor responsible for this story: Susan Warren at

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