Chesapeake Energy Issues New Shares, stock diluted.

Chesapeake Energy announced Friday November 28th that they filed forms with the SEC seeking to issue up to 50 million new shares of stock. This could raise up to $1 billion in capital for the company. The share price dropped over 15% during Friday’s trading session with the news of the possible new issuance. The company has been struggling over the past few months due to falling oil and natural gas prices. The new shares will most likely be issued in 2009.

Although the company has issued new shares of its stock many times in the past, the news hit the stock hard because Chesapeake also stated that they were having cash flow problems and may have trouble paying off future debts. Deutsche Bank, one of the underwriters of the new shares, claims that the new issuance is not being done because of cash problems. Deutsche Bank also stated that if the shares were issued today, it would give Chesapeake Energy a 17% expansion in share count. Although the new shares would dilute the current equity, it would provide the firm with around $1billion in cash (given the current market price). Chesapeake also recently sold domestic shale assets to Norwegian company StatoilHydro ASA for $3.38 billion.

When a company issues new stock, it will unavoidably dilute the current shares in the market. Chesapeake Energy is still rated a buy by numerous analysts who have looked at the company’s long term growth potential. The company will look to rebound as the demand for natural gas increases and fuel prices stabilize.