When I last weighed in on Chesapeake Energy (OTCMKTS:CHKAQ), I said, “Bankruptcy is in the offing, as the energy firm buckles under far too much debt.” That was back in May 2020, as Chesapeake Energy stock traded at $31 after a 200:1 reverse split.
But that was a no-brainer observation.
With high levels of debt, and decimated energy prices, even Chesapeake Energy knew it was time to fold its hand. The company told U.S. regulators there was “substantial doubt about the company’s ability to continue as a going concern.” So, it came as no shock when the company filed for bankruptcy, with a $8.3 billion reported loss.
While some investors are still buying the Chesapeake Energy stock, I wouldn’t touch it. It’s going to zero.
Chesapeake Energy Is Confident
Granted, Chesapeake Energy remains confident it can emerge from bankruptcy.
“We are operating the business as usual throughout this process,” it said in a statement. “We are confident that this is the best path forward for us, and that we will emerge from the Chapter 11 process as a stronger and more competitive company.”
But the stock is a dud, going to zero.
Worse, according to the company, “Each holder of an equity interest in Chesapeake would have such interest cancelled, released, and extinguished without any distribution,” as pointed out by InvestorPlace contributor Ian Bezek.
State of the Industry Is a Factor
Just this year, we’ve seen 60 bankruptcies among oil and gas names, with 18 since July, said the Associated Press’ Cathy Bussewitz. Unfortunately, there could be far more.
“There is no clear future, so it makes it harder for people to invest in new properties, new companies, new employees. Prices will probably come up a little bit, but probably not high enough or fast enough for a number of companies that are still going to be filing for bankruptcy.”
In addition, according to a recent filing with the Securities and Exchange Commission, the company noted, “Although the Company intends to pursue the Restructuring in accordance with the terms set forth in the RSA, there can be no assurance that the Company will be successful in completing the Restructuring or any other similar transaction on the terms set forth in the RSA, on different terms, or at all.”
Volatility Adds to Challenges
Unfortunately, the disaster isn’t just limited to Chesapeake Energy. Over the last three months, Oklahoma energy companies lost $2 billion.
Continental Resources Executive Chairman Harold Hamm said the past three months was “one of the most volatile quarters in this industry.”
Sandridge Energy CEO Carl Giesler said it’s “arguably the most challenging in the history of the oil and gas business.”
That’s not encouraging at all.
The Bottom Line on Chesapeake Energy Stock
There are far better investing opportunities to be found in the market.
Chesapeake Energy is a dud. It may eventually emerge from bankruptcy, but I still wouldn’t touch it. There’s a big history of multi-billion-dollar, jaw-dropping losses here. The industry is plagued by company failures and bankruptcies, with more possible.
There’s also no certainty of survival down the road – at least, not near term.
Remember Chesapeake Energy’s warning: “Although the Company intends to pursue the Restructuring in accordance with the terms set forth in the RSA, there can be no assurance that the Company will be successful in completing the Restructuring or any other similar transaction on the terms set forth in the RSA, on different terms, or at all.”
Again, stay away from Chesapeake Energy stock. It’s done. Walk away.
Ian Cooper, an InvestorPlace.com contributor, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.