Chesapeake Energy Corp., once the second-largest U.S. natural gas producer, warned on Nov. 5 about its ability to continue as a going concern as the debt-laden company struggles with falling prices for the commodity.
Shares of Chesapeake fell 13.8% to $1.34 in early trading after the company reported a marginally bigger-than-expected loss and a huge shortfall in production for the third quarter.
Chesapeake has about $10 billion in debt, nearly four times its market valuation, much of which was a result of increased spending when energy prices were high and for acquisitions aimed at expanding its oil assets to combat falling natural gas prices.
The company said its ability to meet debt covenants in the next 12 months will be affected if oil and natural gas prices continue to remain low.
A continuous rise in U.S. gas production has prices for the fuel heading toward a 25-year low, with output outpacing U.S. consumption.
The company said average realized natural gas price fell 11.5% to $2.38 per thousand cubic feet in the third quarter.
Total production fell nearly 11% to 478,000 barrels of oil equivalent per day (boe/d) from a year earlier and missed analysts' expectations of 490,664 boe/d.
Adjusted net loss attributable to the company was $188 million, or 11 cents per share, in the third quarter ended Sept. 30 from a loss of $8 million, or 1 cent per share, a year earlier.
Analysts on average had expected the company to report a loss of 10 cents per share, according to IBES data from Refinitiv.
The Oklahoma-based firm expects capital expenses to range from $1.3 billion to $1.6 billion for 2020, well below $2.11 billion to $2.31 billion set aside for 2019.
The company also plans to cut its 2020 production costs as well as general and administrative expenses by about 10% while expecting flat oil production year over year.
SunTrust Robinson Humphrey analysts said with operating cash flow outspend in the quarter, investors could question the company's ability to generate free cash flow in 2020 even with a reduced budget.
"We remain cautious on CHK’s leverage profile, cash flow outspend, and sequential production decline," the analysts added.
Recommended Reading
Boaz Energy Completes Sale of PermRock Properties to T2S
2025-04-01 - Boaz Energy II has completed the sale of PermRock Royalty Trust’s underlying oil and gas properties to T2S Permian Acquisition II LLC.
NOG Spends $67MM on Midland Bolt-On, Ground Game M&A
2025-02-13 - Non-operated specialist Northern Oil & Gas (NOG) is growing in the Midland Basin with a $40 million bolt-on acquisition.
Occidental, Ecopetrol Extend Midland Basin Drilling JV
2025-02-03 - The updated plans between Occidental and Colombian state oil company Ecopetrol call for 34 new Midland Basin wells between April 2025 and June 2026.
Continental Resources Signs JV to Explore Shale Oil, Gas in Turkey
2025-03-12 - Early evaluations from the joint venture between Continental Resources, Türkiye Petroleum and TransAtlantic Petroleum suggest ultimate recoverable reserves could reach 6 Bbbl of oil and 32 Tcf to 65 Tcf of gas.
Summit Acquires Moonrise Midstream Assets to Alleviate D-J Constraints
2025-03-10 - A Summit Midstream Corp. (SMC) subsidiary will acquire Moonrise Midstream from Fundare Resources Co. in a cash-and-stock deal valued at $90 million.