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Why Chesapeake Energy Stock Is Sinking Again Today

By Matthew DiLallo - Apr 14, 2020 at 11:45AM

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The oil and gas producer is trying to stay afloat.

What happened

Shares of Chesapeake Energy (CHKA.Q) declined by as much as 12.5% by 10:45 a.m. EDT on Tuesday. A couple of factors weighed on the oil and gas producer's stock price. 

So what

Chesapeake Energy remains under intense pressure due to the dual weights of low oil prices and its debt-laden balance sheet. Those issues have pushed its stock price down more than 80% this year, causing shares to trade well below $1 apiece. Because of that, the company has been under the minimum price needed to remain listed on the New York Stock Exchange. The energy company took a step to address that issue yesterday as its board approved a one-for-200 reverse stock split.  

A red descending stock arrow.

Image source: Getty Images.

While that reverse split will enable Chesapeake's shares to remain on the NYSE, it doesn't help solve its financial issues. Instead, they're growing worse as crude oil prices slumped again today, falling about 5% to less than $21.50 a barrel. That sell-off comes even though OPEC agreed to a historic production reduction agreement yesterday. The current price point remains well below Chesapeake's breakeven level.

Making matters worse, the company has a $136 million bond payment due on July 1 and another $192 million in bonds maturing on Aug. 15. It had hoped to sell between $300 million and $500 million in assets this year to meet those obligations, but that's going to be near impossible given the crash in crude oil prices. As such, the company has reportedly hired lawyers and bankers to advise it in restructuring its debt, which could result in it filing for bankruptcy. One of its largest investors has hired a law firm to assist it in negotiating with the company over the debt it holds. 

Now what

Chesapeake Energy's stock continues to slide as the company edges closer to a likely bankruptcy filing. The best-case scenario for existing investors is that the company works out a pre-packaged deal that preserves some equity, which was the case for Whiting Petroleum. However, there's a real risk that the stock will end up worthless, especially since OPEC's historic market support agreement came up short of expectations, which has kept the pressure on oil prices.

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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