Shares of Chesapeake Energy (CHKA.Q) plunged 20.4% in August, according to data provided by S&P Global Market Intelligence. Not only did oil prices slump, but the energy company also reported a wider-than-expected second-quarter loss.
Chesapeake Energy posted a mixed bag of numbers during the second quarter. On the one hand, some metrics impressed, including its record oil output, improved cost-savings estimate, and progress on pushing out its debt maturities. However, the company's net loss came in at $0.10 per share, which was $0.02 per share worse than analysts expected due largely to lower oil and gas prices. The company's production, meanwhile, declined 6% year over year because of asset sales.
While analysts generally liked the company's overall solid second-quarter report, they remain worried about its financial profile. Chesapeake ended the quarter with more than $10 billion in debt and continues to outspend cash flow on drilling new wells.
That weak financial profile is a concern, especially given the recent weakness in the oil market. Crude slumped 6% last month and is down more than 20% from its high, which is its second bear market in a year. That slide will affect the company's cash flow, given that it has been betting big on oil. That will give it less money to fund its drilling program, which could cause it to add more debt to an already worrisome amount.
Chesapeake Energy has been trying to dig out of the mountain of debt it took on to expand during the boom years. While it's making progress, it could pay down debt more quickly if oil prices would cooperate. Instead they've been heading in the opposite direction, which is putting more strain on the company's finances. Until that trend reverses, Chesapeake's stock will likely remain under significant pressure.