Shares of Chesapeake Energy Corp. took a deep dive Tuesday, after the oil and natural gas production company added a “going concern” statement in its quarterly filing with the SEC, which raised the specter of a potential credit default if current conditions continue.
The company also reported financial results missed Wall Street expectations for a third-straight quarter, and gave investors reason to doubt the company’s ability to achieve its target for free cash flow next year.
The stock CHK, -29.15% tumbled 18.0% to $1.28 in very active trading, the biggest one-day decline in 3 1/2 years, and the worst post-earnings performance in more than a decade.
Trading volume ballooned to 144.4 million shares, compared with the full-day average of about 53.7 million shares.
Chesapeake stated in its 10-Q filing with the Securities and Exchange Commission that fluctuations in oil and natural-gas prices have “material” impact on its financial position, cash flows and quantities of oil, natural gas and natural gas liquid reserves that may be produced.
“If continued depressed prices persist, combined with the scheduled reductions in the leverage ratio covenant, our ability to comply with the leverage ratio covenant during the next 12 months will be adversely affected which raises substantial doubt about our ability to continue as a going concern,” the company stated. “Failure to comply with this covenant, if not waived, would result in an event of default under our Chesapeake revolving credit facility, the potential acceleration of outstanding debt thereunder and the potential foreclosure on the collateral securing such debt, and could cause a cross-default under our other outstanding indebtedness.”