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Chesapeake Energy Bankruptcy: What You Need to Know

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  • According to a Reuters report, Chesapeake Energy (NYSE:CHK) will likely file for bankruptcy as early as this week.
  • This would be the biggest oil and natural gas bankruptcy this year. While energy prices recovered last month, they’re still down sharply for the year.
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Chesapeake Energy’s bankruptcy

Citing unnamed sources, Reuters reported that Chesapeake Energy might file for bankruptcy this week. The stock has been very volatile this year. So far, the stock has gained 45% in June. However, the stock is down a whopping 89% for the year. Based on Monday’s closing prices, the company had a market capitalization of only $184 million, while its total debt exceeds $9 billion.

Earlier this year, the company announced a reverse stock split and suspended its dividend. Chesapeake Energy also withdrew its financial guidance.

Chesapeake Energy stock

The company’s production mix is tilted towards natural gas. Energy prices have tumbled this year. In April, WTI turned negative for the first time in history. While WTI bounced back in May, prices are way below what they were at the beginning of the year. Natural gas prices have been in a long-term bear market. Last year, natural gas prices in the Permian Basin turned negative. In 2018, Nucor (NYSE:NUE), the largest US-based steel company, took an impairment charge on its investments in natural gas wells.

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What can investors expect?

Previously, there were reports of Chesapeake Energy’s bankruptcy. In April, Reuters reported that the company might file for bankruptcy. In May, Chesapeake Energy raised doubts about it being a going concern and warned of bankruptcy.

According to Reuters, Chesapeake Energy has been negotiating a $900 million debtor in possession loan while filing for Chapter 11 bankruptcy. Reuters also reported that if Chesapeake Energy emerges from bankruptcy, creditors including Franklin Templeton would take over. The deal would entail extinguishing the company’s $7 billion debt.

The energy sector has been hit hard amid the pandemic. Even before the pandemic, the price war between Russia and Saudi Arabia took a toll on crude oil prices. Goldman Sachs analysts expect crude oil prices to fall up to 20% in the short term. Leading energy companies have streamlined their business plans to cope up with low oil prices. BP (NYSE:BP) announced a $17.5 billion write-down amid low crude oil prices.

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