U.S. energy firm Chesapeake Energy Corp. said it has no plans of filing for bankruptcy despite its huge amount of debts. The company has financial obligations to pipeline companies including Williams Companies Inc. and Kinder Morgan Inc. through master-limited partnerships. The existing deals might push the pipeline companies to face huge risks as Chesapeake tries to weigh its financial options amid slow growth in the oil market.
Companies like Williams and Kinder Morgan have master-limited partnerships or MLPs, wherein they enter into long-term contracts with oil producers such as Chesapeake. These agreements surged during the U.S. shale boom and reported annual growth of as much as 8%, Reuters reported.
However, investors opted out of placing trust in these energy companies like Chesapeake as risks were anticipated in the market due to their dividend-style distributions, the newswire noted. Federal records indicated that Chesapeake, for one, is obliged to pay these MLPs about $2 billion per year.
Energy companies also continue to experience slower profit growth amid declining oil prices due to oversupply by OPEC. The market is still expected to continue its slowdown until 2017.
Investors' concern over Chesapeake's predicament was manifested by a stock decline on Monday, Feb. 8, fueled by rumors over its $9.8 billion debt restructuring, Business Finance News reported. The energy producer reportedly hired law firm Kirkland and Ellis for financial advice.
Some reports, nevertheless, asserted that this kind of move from Chesapeake is likely less for bankruptcy but more for restructuring. The Wall Street Journal reported that the company might use its revolving-loan facility and would opt for selling noncore assets to stay afloat. Chesapeake can also choose to pay for its discounted unsecured debt first to balance its books.
The paper added that, amid low energy profits for several companies, Chesapeake may just make it through for the next couple of years despite its obligations. Smaller energy companies are likely to fold before a recovery in the market happens, the paper noted.
