Chesapeake warns of asset sale delays Shares in Chesapeake Energy, the second-largest US gas producer, plunged after the company warned that it might be forced to delay or alter its planned disposal programme to stay in compliance with bank covenants. The company said there had been no change in its plans for asset sales to raise up to $14bn this year. However, the possibility of a hold-up to deals that Chesapeake needs to fund its capital spending, coming after weeks of adverse publicity, inflamed concerns about the company's financial position and the shares closed down 14 per cent on Friday at $14.81. The warning came in a filing to the US Securities and Exchange Commission released in confused circumstances on Friday afternoon. The company announced that it would be late in making its regular quarterly earnings filing, which had been due by May 10, and then released it a few minutes later. Chesapeake has said it needs to raise $11.5bn-$14bn from disposals and asset deals this year to pay for its capital spending plans, as its cash flow has been squeezed by low natural gas prices. The investment is vital for the company's plan to increase its production of oil and reduce its reliance on gas, according to Aubrey McClendon, its chief executive. It has identified deals to raise that money, including a proposed joint venture for its Mississippi Lime fields in Oklahoma, the sale of its interest in the oil-rich Permian basin in Texas and New Mexico and a "volumetric production payment" - a cash advance secured against future oil and gas production - for the Eagle Ford shale, also in Texas. The company has been highly successful in doing deals, agreeing seven joint ventures in the past four years, but analysts worry that it may not be able to sell assets on such favourable terms in the future, forcing it to give up valuable fields that could have fuelled future earnings growth. Chesapeake had been due to file its quarterly 10-Q report with the SEC on Thursday, 40 days after the end of the first quarter. On Friday afternoon, it put out a statement saying that it could not meet that deadline because it needed more time "to compile and analyse supporting documentation" and allow PwC, its auditor, to review the statement. Shortly after that, the filing was released, including a change to the company's standard cautionary statement about the prospects for asset sales, highlighting a potential problem with its planned disposal programme. It pointed out that disposals and other deals would affect future cash flows and so "reduce the amount and value of collateral available to secure our obligations," adding that the problem was made worse by low natural gas prices. "As a result, we may delay one or more of our currently planned asset monetisations, or select other assets for monetisation, in order to maintain our compliance [with bank lending covenants]," it said. Chesapeake said in a filing last year that it had bank covenants related to the ratios of debt to earnings before interest, tax, depreciation and amortisation and to its total capitalisation. Moody's, the rating agency, this week changed its outlook for the company's debt to negative, meaning that the next change in its view is likely to be a downgrade. It counts financial instruments such as volumetric production payments as borrowing, even though they are not on Chesapeake's balance sheet, giving an estimated total debt of $23.6bn, compared to the company's reported $13.1bn. On Friday, credit default swaps on Chesapeake traded at 10.5 points upfront, an increase of 5 points, according to Markit, the data provider. That means dealers were demanding $1.05m in a cash payment immediately, plus $500,000 a year, to insure $10m of debt for five years. A rising cost of default protection indicates concern of deteriorating creditworthiness. Additional reporting by Arash Massoudi