Chesapeake Energy (OTC:CHKA.Q) is nearing the end of an era. The oil and gas producer is reportedly just days away from declaring bankruptcy. The culprit is the crushing weight of roughly $9 billion in debt, which the company used to build an energy empire. At its peak, the company was America's second largest natural gas producer, behind ExxonMobil (NYSE:XOM).  

However, Chesapeake Energy is now a shell of its former self. While it's still a top-10 gas producer -- it ranked as the sixth largest in the U.S. at the end of 2019 -- the company's stock has lost nearly all its value because of persistent losses. That's left the company in a steady state of decline for the past several years. 

Here's a look back at Chesapeake's rise up the leader board and subsequent fall from grace.

A drilling rig at sunset.

Image source: Getty Images.

Growth at any cost

Chesapeake Energy had rather humble beginnings. The company's co-founders started it in 1989 with an initial $50,000 investment. They grew the company over the years by acquiring land and drilling new wells. By 1993, the company completed an initial public offering, which valued it at $25 million. By its peak in the middle of 2008, Chesapeake Energy had a market capitalization of more than $36 billion. 

Fueling the rapid rise in Chesapeake's share price was the success of new drilling techniques, which unlocked a treasure trove of natural gas across several shale plays in the country. That led the company to gobble up large swaths of land so that it could continue drilling more wells and grow its gas output as fast as possible. It used most of the cash those wells generated and boatloads of outside financing -- such as issuing new stock and debt -- to fund its expansion. In its peak growth years of 2007 through 2013, the company tallied an average of more than $10 billion in annual capital spending, including a stunning $17.8 billion in 2008.

Cracks in the foundation

That wild spending helped fuel Chesapeake's ascent up the natural gas leaderboard. By the end of 2012, Chesapeake produced more than 3 billion cubic feet of natural gas per day or about 5% of the country's total output. 

However, the company had also piled more than $16 billion of debt on its balance sheet. That was a significant weight on its stock price, which by this time had tumbled 75% from its all-time high. That underperformance led the company to start selling assets as well as make a change at the top by ousting its founding CEO. 

Chesapeake Energy would continue to sell assets in the years that followed. One of the largest was in 2014, when it sold a significant portion of its assets in the Marcellus and Utica shale formations for nearly $5 billion. While it used some of those proceeds to repay debt, the company also bought back some stock and helped bridge the gap between cash flow and its continued outspend on drilling more wells.

Because of that strategy, its debt remained elevated during the oil market downturn of 2014-2015 at around $10 billion. That had the company precariously close to filing for bankruptcy protection in early 2016. However, it was able to walk a tightrope and avoid that fate by completing several debt exchanges with its creditors to relieve some of the pressure.   

The final blow

With a new lease on life, Chesapeake Energy shifted gears in recent years, pivoting away from natural gas toward oil, which had higher profit margins. The company focused on drilling oily wells in the Eagle Ford shale of Texas and Wyoming's Powder River Basin. Meanwhile, it sold gassier assets, including its remaining position in the Utica Shale. It also made a bold oil acquisition by purchasing WildHorse Resource Development for roughly $4 billion in cash and stock in early 2019. At the time, Chesapeake estimated that the growing cash flows from its oil business would enable it to significantly de-lever its balance sheet by 2020.

Unfortunately, wildly volatile oil prices short-circuited that plan. They also prevented the company from achieving its 2020 asset sales target of $300 million to $500 million, which would have been just enough to meet this year's debt obligations. With no other alternatives, Chesapeake is on the precipice of declaring bankruptcy.

Being the biggest doesn't always mean the best

Chesapeake's growth at all costs strategy fueled its rise to America's second-largest gas producer at its peak. Unfortunately, the company built that empire with the help of debt, which came back to bite it in the end. It's a reminder to investors absolute growth can be hollow if the company's financials don't back it up because it doesn't take much for a house of cards to collapse. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.