Three Crazy Days for Chesapeake Stock

Energy investors have been taken for a wild ride in recent months. They've had to contend with geopolitically motivated supply changes, tumbling demand, negative prices, and questions about the ability of dozens of companies in the sector to continue operating. The S&P 500 energy sector lost over 60% of its value from the start of 2020 through its late-March low, but has almost doubled since since. The group is now down about 22% year to date.

For shareholders of smaller oil-and-gas stocks like Chesapeake Energy, the roller-coaster ride has been even tumultuous. Founded by the rambunctious fracking pioneer Aubrey McClendon, Chesapeake had been shifting its focus to producing oil in recent years as the price of natural gas fell. But that pivot was fueled by billions of dollars in debt.

Chesapeake lost $8.3 billion in the tumultuous first quarter, which it ended with just $82 million in cash, $8.6 billion in net debt, and a market value of less than $1 billion. Bankruptcy became a legitimate concern, and investors fled the stock. From the start of 2020 until April 14, shares dropped 84%, to about 13 cents each. Threatened with delisting, Chesapeake executed a 200-for-1 reverse stock split to reduce its share count and prop up its stock price.

That didn't stem the bleeding: The stock fell another 46% through last Thursday, even as the broader energy sector rallied 10% alongside a rebound in oil prices.

Since Thursday, the trading in Chesapeake stock has been particularly bizarre: up 77% on Friday, up 182% yesterday, and down 66% today—all on tremendously high volume. Barron's Avi Salzman has been covering the action.

Beaten-down oil stocks across the board had strong days on Friday and yesterday, as a stronger-than-expected May jobs report boosted hopes of a faster economic recovery. Then over the weekend, OPEC and its allies agreed to maintain production cuts. Investors were betting that Chesapeake and other indebted producers could avoid bankruptcy and that some equity value would remain for shareholders. A short squeeze added fuel to the surge.

Late yesterday, however, a report came out that Chesapeake was preparing to file for bankruptcy and hand the company over to its creditors. Trading in the shares was halted shortly after today's open, down more than 40%. 

Here's Avi:

Chesapeake Energy stock started trading again on Tuesday afternoon after being halted for more than three hours pending news. After trading resumed around 1 p.m., shares plunged 66% to $23.10, before rebounding slightly to $32.21. Trading had to be halted again after it was resumed.

The 'pending news' was expected to be some sort of update on the company’s enormous debt load—perhaps even a bankruptcy filing, which had been rumored the day before. But once trading resumed, there was no news release or securities filing sent out. Chesapeake declined to comment.

Shares ended the day at $23.75, down 66% on the session and 86% year to date. There's still no filing from Chesapeake as of this newsletter.

For more on recent days' action in Chesapeake stock, check out more of Avi's reporting here.