Chesapeake Warns On Risk to Business From Sagging Oil Prices

By Andrew Scurria, Alexander Gladstone and Carlo Martuscelli 

Chesapeake Energy Corp. said it may be unable to stay in business if oil and natural gas prices remain depressed, underscoring the challenges faced by drillers still trying to regain their footing from when commodity prices collapsed in 2014 and 2015.

The Oklahoma City-based company said Tuesday there was "substantial doubt" about its ability to continue as a going concern if oil and gas prices don't rise. Chesapeake said certain terms of its loan agreements will tighten gradually over the next four quarters, heightening the likelihood of a debt default.

"We are actively pursuing with support from the board of directors a variety of transactions and cost-cutting measures," including reducing discretionary spending, debt refinancing, asset sales and reduced capital expenditures, Chesapeake said in a securities filing.

Chesapeake, co-founded by the late wildcatter Aubrey McClendon and best known for its trailblazing push to extract natural gas from shale formations, said it had $9.13 billion in long-term debt as of Sept. 30.

A $1 billion Chesapeake convertible senior note due in 2026 traded at 52 cents on the dollar on Tuesday, down five points from the prior day's close of 57, while a $451 million senior note due in 2022 changed hands at 77 cents, down from 82 cents, according to MarketAxess.

Chesapeake shares were down 13.5% Tuesday morning at $1.34 and have lost 54% of their value in the past 12 months.

The company has been shifting capital expenditures to oil production, betting on crude as the key to a more profitable future. Chesapeake's move to oil came relatively late compared with many of its peers, which were quicker to anticipate that a glut of natural gas in the U.S. would make crude more attractive.

The company on Tuesday also posted a quarterly loss of $61 million, or 6 cents a share, compared with a loss of $146 million, or 19 cents, for the same period a year earlier.

Sales fell to $2.06 billion from $2.42 billion. Daily production in the third quarter averaged at about 478,000 barrels of oil equivalent a day, the company said.

Chesapeake also said it is looking to achieve positive free cash flow in 2020. The company said it is lowering its capital expenditure forecast by about 30% in 2020. It is also looking to lower 2020 production and general and administrative costs by about 10%.

In the fourth quarter, the company said it expects oil production to grow 10% compared with the third quarter.

Despite strong economic indicators in the U.S., energy investors remain concerned that a slowing global economy will hurt demand for crude and fail to make a meaningful dent in inventories. Recent oil-demand forecasts from the International Energy Agency have helped sour investors' outlook on crude, coupled with downbeat manufacturing numbers from around the world and persistent trade tensions.

Sarah Toy and Rebecca Elliott contributed to this article

Write to Andrew Scurria at [e-mail] and Alexander Gladstone at [e-mail]

(END) Dow Jones Newswires

November 05, 2019 11:55 ET (16:55 GMT)

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