Oil India Ltd. (OINL), armed with as much as $1.3 billion of cash for acquisitions, will consider Chesapeake Energy Corp. (CHK:US)’s “corporate governance issues” before investing in the explorer’s shale assets in the U.S.
“We would certainly have to consider Chesapeake’s corporate governance issue,” Finance Director T.K. Ananth Kumar told reporters in New Delhi yesterday. “Investing in their assets is one of the opportunities we’re looking at for investments in the U.S.”
Chesapeake, the second-largest U.S. natural-gas producer, plans to sell as much as $14 billion in assets this year. Plummeting natural gas prices and revelations that Chief Executive Officer Aubrey McClendon used personal stakes in the company’s wells to obtain more than $800 million in private loans have resulted in the explorer losing almost half of its market value in the past year.
Some directors from Oil India met officials from Chesapeake in Oklahoma City, where the company is based, this month, Ananth Kumar said. Discussions to invest in the U.S. company’s assets are preliminary and one among other opportunities, he said.
“There are many opportunities in the U.S. right now and we’ve been approached by a few companies,” Ananth Kumar said.
Jim Gipson, a Chesapeake spokesman, declined to comment in an e-mailed statement.
Chesapeake shares (CHK:US) have declined 49 percent in the past year. Oil India, based in Duliajan in India’s northeastern state of Assam, has dropped 10 percent in the past 12 months and rose 1.1 percent to 454.40 rupees at 9:39 a.m. in Mumbai.
Billionaire investor Carl Icahn bought a 7.56 percent stake in Chesapeake and demanded four of the company’s nine directors be replaced by candidates named by major shareholders, the hedge fund manager said in a May 25 letter to the company’s board. The current board has failed to rein in overspending and a chief executive officer with an appetite for too much risk, he wrote.
The company is facing a cash-flow shortfall (CHK:US) that Fitch Ratings estimates will reach $10 billion this year. Chesapeake has $19.7 billion of total bonds and loans, according to data (CHK:US) compiled by Bloomberg.
Directors at the company’s board agreed to strip McClendon of his chairman title after revelations about his borrowing from firms that do business with Chesapeake. Board members also cut their own pay and started a formal review of the CEO’s financial arrangements.
The company has 125 billion rupees ($2.2 billion) of cash reserves, Ananth Kumar said yesterday. They’ve set aside as much as 70 billion rupees for acquisitions, he said.
“In unconventionals in North America, we will spend a smallish amount $100 million to $200 million,” he said. “We want to gain experience in shale exploration. We’re looking at shale gas, shale oil and also oil sands in Canada.”
Oil India has had talks with ConocoPhillips (COP:US) for Canadian oil sands investments, he said, declining to give more details.
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