Skip to main content

Chesapeake Energy Corp., once the second largest U.S. natural gas producer, warned on Tuesday about its ability to continue as a going concern as the debt-laden company struggles with falling prices for the commodity.

Shares of Chesapeake fell nearly 18 per cent to US$1.28 in New York on Tuesday after the company reported a marginally bigger-than-expected loss and a huge shortfall in production for the third quarter.

Chesapeake has about US$10-billion in debt, nearly four times its market valuation, much of which was a result of increased spending when energy prices were high and for acquisitions aimed at expanding its oil assets to combat falling natural gas prices.

The company said its ability to meet debt covenants in the next 12 months will be affected if oil and natural gas prices continue to remain low.

A continuous rise in U.S. gas production – a byproduct of the shale oil boom – has prices for the fuel heading toward a 25-year low, with output outpacing U.S. consumption.

The company said average realized natural gas price fell 11.5 per cent to US$2.38 per thousand cubic feet in the third quarter.

Total production fell nearly 11 per cent to 478,000 barrels of oil equivalent a day (boe/d) from a year earlier and missed analysts’ expectations of 490,664 boe/d.

Adjusted net loss attributable to the company was US$188-million, or 11 US cents a share, in the third quarter ended Sept. 30 from a loss of US$8-million, or 1 US cent a share, a year earlier.

Analysts on average had expected the company to report a loss of 10 US cents a share, according to IBES data from Refinitiv.

The Oklahoma-based firm expects capital expenses to range from US$1.3-billion to US$1.6-billion for 2020, well below US$2.11-billion to US$2.31-billion set aside for 2019.

The company also plans to cut its 2020 production costs as well as general and administrative expenses by about 10 per cent while expecting flat oil production year-over-year.

SunTrust Robinson Humphrey analysts said with operating cash flow outspend in the quarter, investors could question the company’s ability to generate free cash flow in 2020 even with a reduced budget.

“We remain cautious on CHK’s leverage profile, cash flow outspend, and sequential production decline,” the analysts added.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Report an error

Tickers mentioned in this story

Your Globe

Build your personal news feed

Follow topics related to this article:

Check Following for new articles