Chesapeake Energy Shares Tumble as CFRA Slashes Price Target to Zero

Chesapeake Energy warns there is "substantial doubt" it can continue as a going concern.
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Chesapeake Energy  (CHK) - Get Report shares tumbled Tuesday after an analyst with CFRA slashed her price target on the oil and price producer to zero from 30 cents as the economic impact of the coronavirus cast "substantial doubt" on the company's ability to continue as a going concern.

The shares at last check were down 14% to $11.13.

Analyst Paige Meyer also downgraded her rating on the Oklahoma City company to strong sell from sell.

"CHK announced it will not have a Q1 earnings call to discuss its first quarter results," Meyer said in a note to clients. 

"From it's 10-Q filing, we see a going concern warning due to depressed commodity prices and the scheduled reductions in its leverage ratio covenant, which is likely to significantly reduce CHK's borrowing base." 

The company said Monday 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.”

"We do not expect CHK to be in compliance with its financial covenants beginning in Q4 2020, which would result in an act of default on the credit facility," Meyer said. 

"With a default on the credit facility, we believe other lenders are likely to call debt due as well using 'cross default' clauses."

The economic shutdown caused by the coronavirus pandemic has virtually destroyed demand for oil and gas, while the Saudi-Russian production war left the world awash in crude oil. 

Chesapeake said it had hired advisers to consider strategic alternatives, including restructuring its debt and bankruptcy

"Net debt stands at $9.5 billion as of the end of March," Meyer said. "Meanwhile, tangible net worth is negative after the quarter's large $8.4 billion impairment on Eagle Ford, Brazos Valley, Powder River Basin, and Mid-Continent assets; the impairment amounts to 52% of CHK's year-end 2019 total assets."