Chesapeake Energy Corp.’s bonds have plunged to half their face value as lenders fret that tumbling energy prices are hurting their chances of getting paid on borrowings that are three times the current worth of the company’s oil and gas fields.
The producer’s $1.5 billion of 4.875 percent notes due in April 2022 dropped 9.625 cents this week to 50.375 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The Oklahoma City-based company estimates the discounted value of its proven oil-and-gas reserves will fall to about $4.2 billion by the end of the year down from $22 billion last December.
Chesapeake shares have been the worst performer among their peers in the Standard & Poor’s 500 Index this year, plunging 73 percent. The downturn in oil markets has been especially painful for the driller because it happened just as the company was attempting to focus on petroleum, which traditionally has delivered higher profits than gas.
“We are not forecasting a price recovery,” Chief Executive Officer Doug Lawler said during a conference call with analysts last week. “The downturn in commodity prices has presented a severe test to our industry.”
Collapsing crude and gas prices have erased profits, starved companies of cash flow and spurred more than 200,000 job cuts globally as drillers struggle to stay solvent.
Chesapeake recorded $15 billion in impairments during the first nine months of this year as the value of its fields dwindled. Additional write downs are expected during the current quarter and will continue for as long as energy prices remain under pressure, Chesapeake said in a public filing on Nov. 4.
Representatives of Chesapeake didn’t immediately respond to phone or e-mailed messages seeking comment.