Chesapeake Energy Corp.'s share price took another wrong turn Monday partly on its announcement last week that it would issue stock to raise nearly $1.8 billion to finance U.S. natural gas drilling and exploration activities.

Citing turmoil in the credit markets, declining natural gas prices and concerns about an oversupply of gas, Chesapeake said in separate filings with the Securities and Exchange Commission (SEC) that among other things it is renegotiating some drilling agreements to reduce costs. The filings were made last Wednesday before the holiday.

In one filing the Oklahoma City-based independent said it would issue shares worth as much as $1 billion, with net proceeds to be used for "general corporate purposes, including funding our exploration, development and other capital expenditures." A second filing indicated that 50 million shares worth as much as $781 million would be registered for potential sale over the next year to fund "continuing purchases of assets" instead of spending cash reserves.

The filings sent the company's share price south in Friday's half-day of trading, ending 15% lower for the day, or $3.06, to close the week at $17.18/share. Chesapeake's share price had climbed to $69.40 on July 2 before the credit crisis began. Monday, as energy stocks fell across the board, Chesapeake's share price value suffered as well, falling 12.69%, or $2.18, to end the day around $15/share.

Deutsche Bank energy analyst Shannon Nome said Friday that Chesapeake has no "pressing need for cash," but the new stock sale gives the company flexibility. Based on Friday's share price, the entire stock sale implies a 17% expansion of Chesapeake's 3Q2008 share count, Nome noted. However, the stock issuances would not provide a quick fix for the company, said the analyst.

"No shares can be issued under the acquisitions shelf filing until the SEC declares it effective, and Chesapeake stated that no issuance under the distribution agency agreements is planned until 2009, 'from time to time and as market conditions warrant,'" Nome said in a note to clients. Chesapeake's decision to issue common stock "overdiscounts" the company, and Deutsche lowered its price target on the company to $29 from $32.

Chesapeake has entered into a series of joint exploration partnerships over the past few months to add to its liquidity. Last month Chesapeake completed a $3.38 billion transaction with StatoilHydro ASA to jointly explore the Marcellus Shale (see Daily GPI, Nov. 12). Chesapeake also has entered into joint ventures since July with BP plc and one with Plains Exploration and Production Co. (see Daily GPI, Sept. 3; July 3).

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