Chesapeake Energy Corp. said hello has no intends to seek bankruptcy protection, dismissing a report that wiped out half the U.S. gas driller’s value.
Kirkland & Ellis LLP has served as one of Chesapeake’s counsel since 2010 and continues to advise the organization because it seeks to help strengthen its balance sheet following its recent debt exchange, Chesapeake said inside a statement Monday. The company’s shares dropped a record 51 per cent after Debtwire reported that Chesapeake retained the law firm to assist restructure a $9.8 billion debt load. The loss was pared to 24 percent following the company’s statement.
Here’s exactly what the stock dive looked like in early trading
Burdened with a debt load eight times bigger than its market price, Chesapeake continues to be cancelling drilling projects, trimming its workforce and closing offices to slow the rate where it burns through cash. Gas, which makes up about about 80 per cent of Chesapeake’s production, has averaged about $2.56 per million British thermal units in the past year, down 38 per cent from the year earlier.
Chesapeake is the latest U.S. shale driller to flirt with collapse as a crushing glut of gas and crude renders companies increasingly desperate to avoid insolvency. Houston-based Halcon Resources Corp, retained the Weil, Gotschal law firm to explore bankruptcy, TheDeal.com reported on Feb. 5, citing a person it didn’t identify. Chesapeake and Halcon both suspended dividend payouts on preferred shares recently.
Cash Shortfall
Chesapeake, which pumps more U.S. gas than any driller apart from Exxon Mobil Corp., has $1.3 billion in debts maturing after 2017. Analysts expect Chesapeake to have a cash shortfall in excess of $1 billion over the next two years.
The shares were trading at $2.32 at 11:47 a.m., after sliding probably the most since their debut in 1993 and touching $1.50. Chesapeake will post another consecutive annual loss this season being an oversupply of United states gas weighs on prices and erodes cash flows the company must pay its debts, according to forecasts published by Bloomberg.
Here’s exactly what the recovery appeared as if at midday
Chesapeake is scheduled to disclose fourth-quarter and full-year 2015 results on Feb. 24. A voice mail and e-mail left with the company’s media relations office weren’t immediately returned. Kate Slaasted and Olivia Clarke, spokeswomen for Kirkland & Ellis, didn’t immediately react to messages seeking comments.
Bonds Plunge
The company’s bonds led losses among high-yield debt on Monday. Chesapeake’s notes due March 2016 tumbled by a record to 74.5 cents, from 95 cents a week ago, while its bonds maturing in 2017 fell for an all-time low at 34 cents.
Standard & Poor’s last month cut Chesapeake’s credit-rating to “CCC+” having a negative outlook on assumptions that gas and oil prices will remain weak. The business’s debt leverage is unsustainable, S&P said.
The company was the worst performer around the Standard & Poor’s 500 Index on Monday.
Bloomberg.com
