Chesapeake Energy stock drops as financial fears mount

Shares of Chesapeake Energy plunged 33 percent on Monday amid concern that the Oklahoma City-based driller’s financial options are narrowing. The company dismissed speculation that it’s facing a liquidity crisis.

Burdened with a debt load eight times larger than its market value, Chesapeake has been canceling drilling projects, trimming its workforce and closing offices to slow the rate at which it burns through cash. Monday’s panic was triggered by a sell-off in 3.25 percent notes that mature next month, spurring concern that Chesapeake might be unable to pay off the $500 million bonds, said Tim Rezvan, an analyst at Sterne Agee & Leach.

“When those notes traded off, people started wondering that maybe they’re not going to be able to make their payment five weeks from now,” said Rezvan, who said the concerns were unwarranted. “The company still has an undrawn $4 billion credit facility available to it, and we think they ended 2015 with some cash on hand.”

Chesapeake issued a statement Monday dismissing a report by Debtwire that it had brought on restructuring attorneys from Kirkland & Ellis to help sort out its balance sheet. The company said that the law firm has served as a company counsel since 2010 and that it “currently has no plans to pursue bankruptcty.”

After the statement’s release, the stock pared losses that had reached a record 51 percent earlier Monday.

Chesapeake is the latest U.S. shale driller punished by gluts of gas and crude that have rendered companies increasingly desperate to conserve cash.

Houston-based Halcon Resources retained the Weil, Gotschal law firm to explore bankruptcy, TheDeal.com reported on Feb. 5, citing a person it didn’t identify. Even the industry’s biggest player, Exxon Mobil, has been jolted; last week, Standard & Poor’s warned it may downgrade Exxon’s AAA credit rating for the first time since the Great Depression.

Chesapeake, which pumps more U.S. gas than any driller other than Exxon Mobil Corp., has $1.3 billion in debts maturing by the end of 2017. Analysts expect Chesapeake to have a cash shortfall of more than $1 billion over the next two years.

The shares (ticker: CHK) closed down $1.02, at $2.04 a share, after sliding the most since their debut in 1993 and touching $1.50.

Chesapeake, which was a leading force in gas drilling in the Barnett Shale, has been sued by large public and private landowners in North Texas who allege that the company cheated them out of royalty dollars. In recent months, the company has settled some big lawsuits, though it remains in litigation with parties including the City of Fort Worth and hundreds of small landowners represented by Fort Worth attorney Dan McDonald.

Chesapeake is expected to post a second consecutive annual loss when it releases fourth-quarter and full-year 2015 results on Feb. 24.

This story was originally published February 8, 2016 at 10:01 AM with the headline "Chesapeake Energy stock drops as financial fears mount."