Shares of 'new' Chesapeake Energy climb 5% on 1st day of trading

After months of layoffs and reorganization in court, shale oil and gas producer Chesapeake Energy Corp. caught a ray of sunshine Feb. 10 as its new shares gained 5% on their first day of trading while the trimmed down company emerged from Chapter 11 bankruptcy with $7.8 billion less debt and a renewed focus on its shale gas roots.

A pioneer of the shale revolution in the U.S., Chesapeake borrowed and spent billions leasing and developing acreage in shale plays from Appalachia to Wyoming before the March 2020 collapse in oil prices pushed it into bankruptcy.

Chesapeake's new stock, trading now on the Nasdaq, opened at $43 per share Feb. 10 and climbed to $44.99 per share by the close on steady trading with nearly 1.8 million of 9.8 million outstanding shares changing hands. Its previous shares traded for pennies on the over-the-counter market before being deregistered and declared worthless Feb. 9.

The solid opening for the new stock followed a warm reception from bond investors when the company sold $1 billion of new notes Feb. 3. Both bonds were trading above par value Feb. 10, according to S&P Global Market Intelligence data.

S&P Global Ratings gave the "new" Chesapeake a B+ credit rating with a BB- rating on each bond Feb. 2. "Our rating also reflects Chesapeake's currently low leverage and our expectation that it will generate positive free cash flow," Ratings said. "However, we note its management team has acted to the detriment of its bondholders in the past. The company will be majority owned by its recent debtholders.

"Chesapeake's biggest credit risk is its willingness and ability to continue to live within its cash flows over the next several years," Ratings said. "The company's new financial policy will be focused on keeping its capital spending close to maintenance levels, which will likely lead to modest production declines but support steady, positive cash flows."

Chesapeake told potential investors Jan. 27 that it would become a low-cost, high-volume gas producer.

"The new gas-focused entity will direct 85% of its capital to its top-tier Marcellus and Haynesville assets this year," Shawn Stuart, an analyst with energy data company Enverus, said Feb. 9. "We expect total production to remain flat but gas plays will drive considerable growth over the next three years to offset fairly steep oil declines. Its Northeast Marcellus asset, we believe, is home to some of the lowest-cost gas resource in the U.S., although long-term gas takeaway remains an issue. The Haynesville, meanwhile, is the only highly-economic basin where the company can offset declining volumes elsewhere in its portfolio over the long term."

Chesapeake's other significant operations include oil and gas in the Texas Eagle Ford Shale, shale oil in Central Texas' Brazos Valley and shale oil in Wyoming's Powder River Basin.

"Today marks a new day for Chesapeake," Chesapeake President and CEO Doug Lawler said in a statement. "We have fundamentally reset our business, and with an improved capital and cost structure, disciplined approach to capital reinvestment, diverse asset base and talented employees, we are poised to deliver sustainable free cash flow for years to come."

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.