Chesapeake plans reverse stock split, removes 'ongoing concern' language from regulatory report
Chesapeake Energy intends to conduct a reverse stock split in an attempt to keep its shares trading on the New York Stock Exchange.
Doug Lawler, Chesapeake’s CEO, told analysts Wednesday he expects the company will notify federal regulators in a few weeks.
It wasn’t clear Thursday whether Chesapeake would need investor approval to execute a reverse stock split.
Lawler stated the company also removed “going concern” language from the annual report it filed this week with the U.S. Securities and Exchange Commission, based upon improved confidence its board and leadership team possesses after making progress the past three months improving its balance sheet.
In a SEC filing the company made in November, Chesapeake included the language when it indicated it could have difficulty continuing to operate because of difficulties it expected it could encounter in maintaining debt ratios required by its credit agreements.
Continued depressed pricing for oil and natural gas could affect the company’s ability to meet those requirements and could potentially shut the company’s doors, the filing said.
“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,” the filing stated. That, it continued, would raise “substantial doubt about our ability to continue as a going concern."
Lawler told analysts Wednesday the company no longer held that concern.
“Given the quality of our assets, the competitive strength of our operating platform, capital efficiencies and our track record of balance sheet improvements, we are confident in the company’s stability and future,” Lawler said as he provided opening remarks on the call.
“We will continue to take the necessary steps to improve the financial position of the company and better align the balance sheet with our operating expertise,” Lawler said.
He told analysts Chesapeake eliminated more than $12 billion in debt and liabilities, “all while building and maintaining a standard of operational excellence and execution that is paramount for long-term value creation.
“With these improvements, we will restore Chesapeake’s ability to create shareholder value in the current market environment.”
The New York Stock Exchange notified Chesapeake in December that its share was in danger of being delisted from the platform, giving it six months to get its average monthly value back to at least $1.
On Wednesday, after Chesapeake issued its financial and operational results for 2019’s fourth quarter and full year, the stock opened at about 44 cents a share and closed at about 31 cents a share.
On Thursday, it closed at about 26 cents a share.
A reverse stock split combines multiple share units into a single unit to improve its value.
Jake Dollarhide, CEO of Tulsa-based Longbow Asset Management, said companies take that step to keep their stock on a major exchange and to keep the company exposed to potential new investors.
“The goal is to make your stock attractive to investors who might not have given it a look at 33 cents per share, but might be interested at $3 a share or better,” Dollarhide said.
“That won’t change attitudes of current stockholders, but its price right now is sending a message of its own that this is a company in peril, with very few options.”