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The financial problems have been amplified by a bid to diversify away from natural gas by betting big on oil. The company’s October 2018 deal for shale oil driller WildHourse Resource Company, valued at $4 billion, including debt, came when US oil prices were trading at nearly $70 a barrel. Weeks later, crude plunged below $45 a barrel. Oil prices have yet to fully recover.
Chesapeake’s balance sheet is carrying $9.7 billion of debt, compared with $8.2 billion at the end of 2018 — nearly five times more than Chesapeake’s entire market value.
The company warned in the SEC filing that its leverage ratio could breach certain restrictions over the next 12 months. Failure to comply with these restrictions would cause the company to default on its revolving credit facility and other loans, Chesapeake said.
Chesapeake said that these restrictions could be waived by its bankers. And in the meantime, the company is scrambling to pay down debt.
Citing weak prices, Chesapeake on Tuesday announced plans to slash its drilling and completion activity by 30% in 2020. And the company plans to cut production and general expenses by about 20% in a bid to achieve free cash flow. Executives also said they will consider selling assets to raise cash.
“We’ve been keenly focused on absolute debt reduction, and we’ve made great strides,” Domenic Dell’Osso, Chesapeake’s chief financial officer, told analysts during a conference call.
“The volatile commodity price environment has pressured the speed and timing of accomplishing these goals,” Chesapeake CEO Robert Lawler said during the call, “but we will continue to make incremental progress and improve our competitiveness and profitability”