Shares In Chesapeake Energy Set For Delisting, As Historic Bankruptcy Is Finally Official
The NYSE this morning suspended trading in shares of freshly bankrupt Chesapeake Energy and commenced delisting proceedings for the stock, which is frozen at $11.85.
The company, in filings yesterday for its Chapter 11 restructuring, in U.S. Bankruptcy Court in Houston, made it clear what the outcome was going to be for holders of its common stock under its plan. “Each holder of an existing equity interest in Chesapeake shall have such interest cancelled, released, and extinguished without any distribution.”
Delisting Chesapeake is an important move given the stock trading environment we’re in, with retail investors on the Robinhood platform having been avidly bidding up shares of already bankrupt companies like Hertz and Whiting Petroleum. The Securities & Exchange Commission a couple weeks ago put the kibosh on Hertz’s plans to sell new common stock to investors dumb enough to buy it. One inexperienced trader on the Robinhood platform took his own life after believing his positions had resulted in a $700,000 loss.
Chesapeake had already made a last gasp effort to keep its equity trading earlier this year when it did a 1-for-200 share consolidation. This final delisting will bring an end to an exciting stock much beloved of traders in the oil and gas markets. A decade ago, when Chesapeake was the nation’s biggest shale gas driller and CEO Aubrey McClendon its mercurial leader, Chesapeake stock tracked up and down with natural gas prices. So it’s ironic that today as Chesapeake shares became worthless, natural gas spot prices have jumped 12% on NYMEX to $1.73 per mcf.
Chesapeake has spent months on its restructing program, which according to court documents will eliminate $7 billion in debt, and envisions a recapitalized company with enterprise value of $3.25 billion. The company has already secured $925 million in debtor-in-possession financing, and has a tentative deal for $2.5 billion in exit financing, including a $1.75 billion revolver and $750 million term loan. They also have support for an injection of $600 million in new equity.
CEO Doug Lawler said in a statement today that the company has already been restructuring for years — and has removed $20 billion of other financial committments and leverage. But no matter how much Lawler cut, it just hasn’t been enough to deal with the lingering mountain of debt taken on to develop oil and gas projects that may have made sense at higher commodity prices.
There are plenty of valuable assets left in Chesapeake — analysts at Rystad expects the company to sell a host of assets including its core position in the Haynesville gas play of Louisiana. But nearly the entire portfolio requires commodity prices well above $40/bbl oil and $1.75/mcf natural gas to generate a profit. Reflecting the lowered value of oil and gas reserves, Chesapeake in the first quarter of 2020 recorded its biggest loss ever, of nearly $10 billion — tied to balance sheet writeoffs. It’s a problem the whole industry is facing, as capital spending on U.S. oil and gas has crashed from $140 billion in 2014, to an expected $35 billion this year, according to Oil & Gas Financial Analytics.
Chesapeake’s peak share price was way back in June 2008, when Chesapeake traded at a reverse-split-adjusted $12,480 per share. Oil prices then were heading to $140 a barrel and natural gas was at $14 per mcf. The thrill of those impossibly high prices spurred McClendon’s landgrab mania. Chesapeake found a lot of oil and gas, grew production fast, attracted lots of JV billions, and touched off the decade of the Great American Fracking Boom. The result was indeed a great success for America’s energy balance, enabling us to replace dirty coal with clean-burning natural gas while also becoming one of the world’s biggest oil producers — saving American consumers hundreds of billions of dollars in the process.
Sadly, Chesapeake’s long-suffering shareholders paid the price. So much of Chesapeake’s shareholder value had been attributable to McClendon’s hype. They’ve since learned a few tough lessons the hard way: leverage kills you eventually; the best cure for high commodity prices is high commodity prices; and that when you’re losing money on every unit, you can’t make it up in volume.
Chesapeake’s bankruptcy court docket can be found here. And you can check out my 2011 cover story on McClendon here: