By Joe Carroll, Allison McNeely and Sayer Devlin
Once a vanguard of the U.S. shale revolution, Chesapeake has fallen headlong toward collapse as it and rival drillers flooded the U.S. with excess gas, crushing prices and destroying billions of dollars in value. Chesapeake, a brainchild of late shale pioneer Aubrey McClendon, lost more than 95% of its market value since Lawler was recruited to revive the company in 2013.
“Our price target on this is zero,” said Sameer Panjwani, director of exploration and production research at Tudor, Pickering, Holt & Co. “Everyone is concerned with the debt load here. You either have to sell assets, which in this market is pretty tough to do, or you have to generate free cash flow, which they’re not doing well in this environment. They’re backed into a corner.”
Up until now, Lawler’s campaign of belt tightening, job cuts and debt exchanges bought it time as he pursued plans to transform Chesapeake into an oil producer. But on Wednesday, the company’s second-lien bonds due in 2025 fell to about 66 cents on the dollar, well below their face value of 100 cents when sold in December.
Credit-derivatives traders are pricing in all-but-certain odds of a Chesapeake default in the next five years, with the cost to insure $10 million of debt in the credit-default swaps market surging to about $6.5 million upfront and $500,000 annually.
The company has $209 million of bonds coming due in August, out of a total debt load of more than $9 billion.
Chesapeake shares dipped 30% to 30.86 cents a share, the lowest close since McClendon and co-founder Tom Ward took the gas producer public in 1993.
“Significant portions” of the company’s portfolio aren’t being invested in as the company shrinks spending and focuses on its highest-return properties, Lawler told analysts and investors during a conference call.
“As we think about the opportunities to meet the near-term maturities, we have a very large portfolio of things we are presently working on and will continue to look at for divestiture this year,” he said.