​Key insights into Chesapeake’s decline into bankruptcy: Evaluate Energy

From riding high to bankruptcy, Chesapeake Energy Corporation’s decline will shock many in the industry. Evaluate Energy tracks Chesapeake’s cash and financing gap over 10 years.

Key insights include:
  • Production grew 69 per cent from 431,000 boe/d to 730,000 boe/d between Q1 2010 and Q4 2014. Growth was financed only in part by organic, operating cash flow, which lagged capital expenditure.
  • Chesapeake spent almost US$30 billion more in capex between 2010 and 2014 (excluding any asset acquisitions) than it generated from operations. The finance gap was covered by asset sales and debt. Over the four-year growth period, operating cash flow was half the combined sum of cash generated.
  • In late 2014, the price crash hit and Chesapeake’s typical sources of cash dried up. New debt became unavailable — the company took on a net sum of zero new debt in 2015 – and asset sales have remained a fraction of the size of pre-2014 cash inflow.
  • Despite the lack of cash generated from asset sales, the company did see its production fall to hit its operating cash flow.
  • Fast-forward to the end of 2019 and Q1 2020, and the growth that took years of heavy investment has disappeared.
  • Q1 2020 production for Chesapeake was 479,000 boe/d, only 11 per cent larger than Q1 2010 and a 34 per cent reduction on the peak production levels seen in Q4 2014. With less operating cash flow, and very little opportunity to take on debt or sell assets like before, Chesapeake’s original debt levels were looming large.

Source: Evaluate Energy