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Why Chesapeake Energy Stock Plunged 37% in March

By Matthew DiLallo - Updated Apr 2, 2020 at 9:42AM

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Plummeting crude prices are pushing this oil and gas producer to the brink.

What happened

Shares of Chesapeake Energy (CHKA.Q) tumbled 37.2% in March, according to data provided by S&P Global Market Intelligence. Weighing on the energy company were dual nosedives in the price of oil and natural gas due to the effect of the COVID-19 pandemic on the U.S. economy.  

So what

Oil prices in the U.S. plummeted 54% last month, closing around $20 a barrel, pushing it back to levels not seen since the early 2000s. Natural gas also cratered in March, falling to a 25-year low. These developments weighed heavily on Chesapeake Energy since it will make it nearly impossible for the company to stay afloat, given its massive debt level and near-term maturities. 

A natural gas well with pipelines at sunset.

Image source: Getty Images.

Because of that, the company reportedly hired lawyers and investment bankers who specialize in restructuring debt. Chesapeake ended 2019 with $8.92 billion of debt outstanding, including $302 million maturing this year. It initially expected to sell $300 million to $500 million in assets to address its 2020 maturity. But that seems unlikely now, given that plunging oil and gas prices have also cratered asset values. 

Now what

It seems like a foregone conclusion that Chesapeake Energy will file for bankruptcy this year. Bloomberg tabbed it as one of the five most-endangered shale drillers last month. One of those companies has already filed for bankruptcy, which will likely force several others to go that route. While Chesapeake's investors may wind up with some equity value if that happens, its stock could also end up worthless, which is why investors should steer clear of its shares.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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