Shares of Chesapeake Energy (CHK) fell Monday after the oil and gas producer announced in its 10-Q filing with the Securities and Exchange Commission that there was “substantial doubt about the company’s ability to continue as a going concern.”
The coronavirus pandemic has destroyed demand for oil and gas, and the Saudi-Russian production war left the world awash in crude oil. Plunging oil and gas prices naturally have put the kibosh on Chesapeake.
“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,” the company said in its filing.
“If the current depressed prices persist, combined with the scheduled reductions in the leverage ratio covenant and an expected significant reduction in our borrowing base in our scheduled determination, then our liquidity and our ability to comply with our financial covenants during the next 12 months will be adversely affected,” the company added.
Based on its present forecast, Chesapeake doesn’t expect to be in compliance with its financial covenants beginning in the fourth quarter of 2020.
Chesapeake said it has hired advisers to consider strategic alternatives, including restructuring its debt and bankruptcy.
The company had used the “going concern” phrase in its SEC filing in November and removed it in its February filing after strengthening its balance sheet. But that was before the pandemic raged.
Chesapeake shares recently traded at $14.12, down 3.93%. The stock has cratered 86% over the past three months.