The NYSE stopped trading Chesapeake Energy stocks this morning and initiated a delisting process for the stock, which is frozen at $ 11.85.
The company yesterday clarified what Chapter 11 restructuring filings with the Houston bankruptcy court in Houston would look like under the plan for shareholders of its common stock. “Any holder of an existing investment in Chesapeake must have that investment canceled, released and canceled without distribution.”
Chesapeake’s delisting is an important step in the current equity trading environment. Private investors on the Robinhood platform have eagerly offered shares in already bankrupt companies like Hertz and Whiting Petroleum. The Securities & Exchange Commission put the Kibosh on a few weeks ago Hertz’s plans sell new ordinary shares to investors who are stupid enough to buy them. An inexperienced trader on the Robinhood platform took his own life after believing his positions resulted in a loss of $ 700,000.
Chesapeake had made a final attempt to keep trading stocks earlier this year when it did a 1-for-200 stock consolidation. This final delisting will end an exciting stock that is loved by traders in the oil and gas markets. A decade ago, when Chesapeake was the country’s largest shale gas drill and CEO Aubrey McClendon was its mercury leader, Chesapeake stock was chasing up and down natural gas prices. So it’s ironic that today, when Chesapeake stocks became worthless, NYMEX natural gas spot prices rose 12% to $ 1.73 per mcf.
Chesapeake has spent months on it Restructure the program, which, according to court documents, will eliminate $ 7 billion in debt and provides for a $ 3.25 billion recapitalized company. The company has already received $ 925 million in debt financing and has entered into a preliminary exit loan agreement of $ 2.5 billion, including a $ 1.75 billion revolver and a temporary loan of $ 750 million. They also support a $ 600 million injection of new equity.
CEO Doug Lawler said in a statement today that the company has been restructuring for years – and has eliminated other $ 20 billion in financial commitments and leverage. Regardless of how much Lawler has cut, it has simply not been enough to deal with the ongoing mountain of debt that has arisen for the development of oil and gas projects that may have made sense with higher commodity prices.
Chesapeake has plenty of valuable assets left – Rystad analysts expect the company to sell a variety of assets, including its core position in the Louisiana Haynesville gas game. However, almost the entire portfolio requires commodity prices well over $ 40 / barrel oil and $ 1.75 / mcf natural gas to make a profit. Chesapeake recorded the largest loss of all time in the first quarter of 2020 at almost $ 10 billion due to the lower value of its oil and gas reserves – tied to write-downs on the balance sheet. This is a problem for the entire industry as oil and gas investment in Oil & Gas Financial Analytics has dropped from $ 140 billion in 2014 to an estimated $ 35 billion this year.
Chesapeake’s highest price was back in June 2008 when Chesapeake was trading at a reverse split adjusted value of $ 12,480 per share. Oil prices then moved to $ 140 a barrel and natural gas to $ 14 a mcf. The thrill of these incredibly high prices spurred McClendon’s land-grab mania. Chesapeake found a lot of oil and gas, quickly increased production, attracted many JV-billions and triggered the decade of the Great American Fracking Boom. The result was indeed a huge success for America’s energy balance, which allowed us to replace dirty coal with clean-burning natural gas while becoming one of the largest oil producers in the world, saving American consumers hundreds of billions of dollars.
Unfortunately, the long-time Chesapeake shareholders paid the price. So much of Chesapeake’s shareholder value came from McClendon’s hype. Since then, they have learned a few difficult lessons the hard way: leverage kills you at some point; The best remedy for high raw material prices is high raw material prices. and if you lose money on every unit, you cannot make up for the volume.
The Chesapeake bankruptcy court can be found Here. And you can read my 2011 cover story about McClendon here: