U.S. natural gas driller Chesapeake Energy Corp. (CYC) has been halting investor payouts and cutting jobs to keep its cash flow from drying up. Now, with its shares dropping 51% following reports by Debtwire that the company has hired restructuring attorneys to help deal with its $9.8 billion debt, investors may have a reason to worry. During the first hour of trading alone on Monday, $838M in market value was eliminated.
Chesapeake has a debt load that is eight times larger than its market value. Even though it pumps more gas in the U.S. than any driller besides Exxon Mobil Corp., Chesapeake has $1.3B in debts that are scheduled to mature by the end of next year.
Last month, Standard & Poor’s reduced Chesapeake’s credit rating to CCC+, while issuing a negative outlook that gas and oil prices would stay on the weak end. S & P declared the natural gas driller’s debt leverage “unsustainable.
Investors are not the only ones at risk now that Chesapeake is in trouble. Oil and gas pipeline companies, many of which are master limited partnerships, with contracts worth billions of dollars could also take a hit. Companies with contracts with Chesapeake include Kinder Morgan Inc., Williams Companies Inc., Marathon Petroleum Corp’s unit MPLX LP, Columbia Pipeline Partners LP, and Spectra Energy Partners LP. Reuters reports that according to federal filings, Chesapeake said it is on the line for about $2B a year for pipeline space run by MLPs.
Meantime, investors continue to flee out of worry that companies can’t keep on with their dividend-style distributions. In the wake of concerns, Chesapeake recently announced that it doesn’t intend to file for bankruptcy protection.
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Chesapeake Plunges 40% on Report It Hired Restructuring Adviser, Bloomberg, February 8, 2016
STANDARD & POOR’S DOWNGRADES CHESAPEAKE ENERGY TO CCC+, Platts, January 26, 2016