Chesapeake raises $6.4 billion with complex financing plan
Bruce Bullock, director of the Maguire Energy Institute at SMU's Cox School of Business, about Chesapeake Energy Corp.'s recent financing plan.
By Adam Wilmoth
Chesapeake Energy Corp. is no stranger to big financing deals.
In recent years, the company has increasingly turned to a finance structure known as a Volumetric Production Payment, or VPP. Chesapeake has raised $6.4 billion since 2007 using the finance instrument that provides the company with a cash payment up front in exchange for a percentage of the oil or natural gas produced in a specific set of wells over a specific amount of time.
Some observers have compared VPPs to futures contracts, which are more common.
“VPPs are a pretty widespread instrument in the industry,” said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University in Dallas. “Chesapeake is not at all unusual for a natural gas producer to use that investment. It's actually safer than debt for the lender, and it's quicker and easier than trying to do a share offering because it's secured by an asset. It's an actually much more efficient way to raise money.”
Bullock said the use of VPPs makes sense for Chesapeake, which for years has used hedges and forward sales contracts to minimize the risk of falling commodity prices.