Chesapeake Energy Corp. collapsed to a 20-year low Wednesday, one day after the shale gas driller warned it may not be able to outlast low fuel prices and issued a “going concern” notice.
Shares fell as much as 24 per cent intraday to their lowest since 1999. The stock also briefly dipped below the US$1/share mark, and Wall Street isn’t optimistic on Chesapeake’s future.
“While we don’t expect this move to come as a surprise given balance sheet issues, the going concern warning in the most recent 10-Q highlighted a declining leverage covenant that may be [to] difficult overcome in our view,” Tudor Pickering Holt & Co. said. The Houston-based energy investment bank on Wednesday downgraded its stock recommendation to a sell from hold.
Chesapeake’s Haynesville shale asset is the most likely candidate for a sale, though “production (and value) is declining by the day as the asset has entered base decline,” Tudor analyst Sameer Panjwani wrote in a note to clients.
Meanwhile, Chesapeake’s US$1.3 billion of 8 per cent senior unsecured bonds maturing in 2025 dropped 3.5 cents to 60.5 cents on the dollar, Trace prices show. The bonds are trading at a record low.
Sanford C Bernstein is also bearish on Chesapeake’s survival prospects. Chesapeake could look to tap its revolver, or engage in more debt-for-equity transactions, but “neither of these options give us comfort about the prospect of the stock over the next 12 months,” analyst Bob Brackett said in a note. Bernstein cuts its price target to 50 US cents from US$1.25 per share, reiterating an underperform recommendation.
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