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Shale Pioneer Chesapeake warns that gas fall victims may fall



(Bloomberg) – Chesapeake Energy Corp. – the company that was once the symbol of America's shale gas wealth – warns that it may not be able to surpass low fuel prices.

Reflecting growing pains across the nation's energy sector, the Oklahoma-based company's stock and bonds tumbled Tuesday after saying it may not be viable as a "continuing business" if low oil and natural gas prices continue. The warning came just over an hour after the company suffered a larger-than-expected loss for the third quarter.

A decade ago, Chesapeake was a $ 37.5 billion company led by the energetic Aubrey McClendon, an outspoken gas industry spokesman. Chesapeake became the second largest US fuel producer. But in 2016, McClendon was indicted by a federal grand jury on charges of conspiring to rig bids for the purchase of oil and gas leases. A day later, he was dead after his car collided with a freeway crossing.

On Tuesday, Chesapeake's market capitalization was $ 2.6 billion. The company was brought low by years of low gas prices, a result of an industry that has been the victim of its own success in cracking open slate rock formations for access to additional supplies.

The company has spent the years since McClendon's death selling assets, cutting jobs and trying to produce more oil in an attempt to nail down a mountain of debt. That warning Tuesday comes when shale producers are struggling to prove to investors that they are producing positive cash flow, not just growing at all costs.

The warning of continued operations worries that CEO Doug Lawler's six-year campaign to save Chesapeake from the billions of dollars in debt collected by McClendon may be on the verge of failure. Lawler, who was selected for the job by activist investor Carl Icahn, long sought to turn the gas giant into an oil company with no avail.

If oil and gas prices remain low, the company may not be able to meet its leverage ratio package over the next year, "which casts significant doubt on our ability to continue as a continuing business," Chesapeake said Tuesday in a quarterly submission. The warning comes less than a year after Lawler orchestrated the $ 1.9 billion takeover at WildHorse Resource Development Corp.

Shares fell as much as 17%, mostly in more than three years. Chesapeake's coupon notes of 8% due to 2025 are among the most actively traded securities in the high-yielding market, according to Trace. The price of the bond fell by over $ 4, the biggest fall in the record for security. The 8% coupon notes due to 2027 also plunged to the lowest price ever.

Leaders tried to calm some fears during a third-quarter conference call. The manufacturer continues to look for opportunities to improve the balance sheet, including asset sales, downgrade of acquisitions and capital financing options, they said.

"We could go out and waive our banking group at any time, but at that moment we continue to be focused on the strategic levers that result in lasting debt reduction," said CFO Nick Dell & # 39; Osso Jr. [19659011] & # 39; Massive Debt & # 39;

Chesapeake's loan was $ 9.73 billion as of September 30, up from $ 8.17 billion at the end of last year.

"With huge debt, leverage is not going every quarter you continue to spend, "said Neal Dingmann, an analyst at SunTrust Robinson Humphrey Inc., by phone." What does gearing look like next year, and how will you address it internally or externally? That's the story. "

Although Chesapeake plans to cut spending by almost a third next year as it seeks to generate free cash flow, investments in the third quarter increased 16% year-over-year as they completed several wells. 19.

Chesapeake has already taken some steps to cut debt. In September, the company announced a $ 588 million debt swap. In a statement of earnings earlier Tuesday, Chesapeake said it had restructured gas collection and crude transportation contracts in South Texas and the Brazos Valley to improve future returns.

"They need to walk people through how they plan to get free cash flow," Sameer Panjwani, an analyst at Tudor, Pickering, Holt & Co., said by phone. “A large part of it can be the sale of assets. They've talked about it before at a high level, but how far are they in any of these processes? ”

– With the help of Christine Buurma and Jeremy Hill.

To contact reporters about this story: Rachel Adams-Heard in Houston at radamsheard@bloomberg.net; Kriti Gupta in New York at kgupta129@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Christine Buurma, Joe Carroll

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