Will Shale Giant Chesapeake Go Bankrupt?

U.S. shale gas pioneer Chesapeake Energy  said on Monday it was evaluating a Chapter 11 bankruptcy protection reorganization-along with other options--as the low oil and gas prices weigh heavily on its finances and substantial outstanding debt.

Chesapeake Energy-which helped propel the shale gas revolution in the late 2000s with leading positions in the Marcellus, Barnett, and Haynesville shale basins-is now facing tough times trying to heal its balance sheet, on which US$9.7 billion in total debt weighs. Even before the price crash in March 2020, the company had warned in November that the depressed oil and natural gas prices raise "substantial doubt about our ability to continue as a going concern."  

Chesapeake Energy had removed the 'going concern' warning in the annual report for 2019 in February, but now the warning is back to its filing with the SEC, and Chesapeake (NYSE: CHK) shares slumped by 3.54 percent in pre-market trade on Monday.  

The company said today that "Based on our current forecast, we do not expect to be in compliance with our financial covenants beginning in the fourth quarter of 2020."

"We expect to see continued volatility in oil and natural gas prices for the foreseeable future, and such volatility, combined with the current depressed prices, has impacted and is expected to continue to adversely impact our business," Chesapeake Energy said.

On Friday, Chesapeake Energy said that it had revised its compensation structure and performance metrics after deciding, together with advisors, that they would "not be effective in motivating and incentivizing the Company's workforce." 

Chesapeake pre-paid 21 senior executives and named executive officers a total of $25 million, for which they waived their participation in the company's 2020 annual bonus plan and waived their rights to all equity compensation awards with respect to 2020.     

By Tsvetana Paraskova for Oilprice.com

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