The company that for the past decade has been emblematic of the rise and pitfalls of shale drilling and fracking, Chesapeake Energy, saw its stock price collapse today, plunging by 29.15 percent in a single day.

At the end of the day on November 6, a share in Chesapeake (NYSE:CHK) was worth less than a buck, priced at $0.91.

How Low Can It Go?

It was the lowest stock price for the company since March 5, 1999 — and well below the $1.35 a share Chesapeake was worth on the first day its shares were listed back in 1993.

During that time, Chesapeake became the nation’s second largest producer of natural gas after ExxonMobil — a title it lost less than two years ago.

Over the past decade, the firm also racked up billions of dollars in debts, became the target of a federal antitrust investigation (settled in 2018), and was fined millions for illegally polluting water and causing other environmental harms. Chesapeake also lost its former CEO Aubrey McClendon, once hailed as “The Shale King,” who famously died in a fiery SUV accident in 2016 shortly after being indicted by the Justice Department, leaving behind a maze of debts, assets, and obligations in an estate that has taken attorneys years to sift through.

Chesapeake warned in a Securities and Exchange Commission (SEC) filing on Tuesday that if oil and natural gas prices don’t rise, the company will be at risk of a cascading series of defaults on its debts that could raise “substantial doubt about our ability to continue as a going concern.”

Roughly an hour earlier, Chesapeake reported financial results that missed analysts’ earnings expectations — meaning that it’s fallen short of Wall Street’s expectations each quarter this year.

Shares in Chesapeake Energy, once the second-largest gas producer in the US, have dropped again this morning: down 20% to a 20-year low. The company said on Tuesday it might might not be viable as a going concern if low oil and gas prices persist. https://t.co/sPBnytzUHg — Ed Crooks (@Ed_Crooks) November 6, 2019

At its peak in 2008, Chesapeake was valued at roughly $37 billion. But after more than a decade of aggressive drilling and fracking and land acquisition, as the stock market closed today, the company’s market capitalization was $1.48 billion.

The price of West Texas Intermediate oil this year has averaged over $56 a barrel (lower than last year, but higher than the average price in 2017, 2016, or 2015, following several years when oil averaged close to $100 a barrel).

For drivers, that has translated to gas prices that have stayed between $2 and $3 a gallon on average this year, according to data from GasBuddy.com.

For shale drilling companies, those prices have seemed catastrophically low.

Chesapeake Energy is hardly alone in floundering financially. In June, Steve Schlotterbeck, former CEO of EQT, which is now the largest natural gas producer in the U.S., described the industry’s decade of poor financial performance in stark terms.

“The shale gas revolution has frankly been an unmitigated disaster for any buy-and-hold investor in the shale gas industry with very few limited exceptions,” Schlotterbeck said. “In fact, I'm not aware of another case of a disruptive technological change that has done so much harm to the industry that created the change.”

Why Stop Now?

Chesapeake told investors yesterday that it planned to scale back — but not stop — its drilling and fracking operations, and that it expected to spend more than a billion dollars to keep at it.

“While we are not, I have not finalized exactly where the rig count will be next year, what we do know is that $1.3 billion to $1.6 billion will be directed across the higher-margin oil assets,” CEO Robert D. Lawler said during an earnings call on Tuesday. “So you'll see two to three rigs in [the Powder [River Basin, in Montana and Wyoming], two to three in South Texas, two to three in Brazos Valley and two to three in the Marcellus asset.”

The company’s presentation to investors for the third quarter of 2019 indicates that in Pennsylvania's Marcellus Shale, Chesapeake has enough land leased to allow it to keep drilling for a decade and still “break even” if natural gas prices are between $1.50 and $1.75 per thousand cubic feet (mcf). (However, investors may be forgiven some skepticism about “break-even” calculations; in December, the Wall Street Journal examined how it is that shale companies so often seem to lose money hand-over-fist even when oil and gas prices are well above their “break-even” estimates.)

The presentation shows Chesapeake has so far drilled 30 wells in the Marcellus this year, and plans to drill four more during the final three months of 2019. In Texas, Chesapeake lists 154 new oil and gas wells so far this year, plus 55 in the Powder River Basin, and 24 in Louisiana.

It reported no new wells this past quarter in its home state of Oklahoma, after reporting 14 new wells during the first half of the year.

“With massive debt, leverage is not going down every quarter you continue to outspend,” Neal Dingmann, a SunTrust Robinson Humphrey analyst told Bloomberg.

Fracking's Debt Problem

The company needs to generate income in part because it must make payments on its debt — like many companies in the shale industry. But while the industry has doubtlessly produced vast volumes of oil and gas, it has also failed to sell that oil and gas for more money than they pumped into production, analysts say, citing the industry’s problems generating free cash flow from their operations.

“The industry is admitting what independents who drilled with industry partners early on figured out: You cannot make money drilling at this price structure,” one anonymous executive told the Dallas Fed in September, according to NASDAQ.com. “An ongoing drilling program consumes all your returns and continues to require new money.”

An oil rig in California in 2010. Photo Credit, Justin Vidamo, via Flikr

Some observers warned that it was far too early to call the shale rush over.

“Has every barrel of U.S. production during this period been profitable? Of course not,” the editors of OilPrice.com wrote in a piece today arguing that shale drillers will continue to pump out oil and gas despite all of their financial troubles. “But with low interest and high stock prices, shale producers should be able to source new capital to keep the pumps going. As the saying goes, never underestimate the willingness of a U.S. wildcatter to poke holes in the ground with other people’s money. With the world’s central banks once again lowering rates, ‘other people’s money’ should be plentiful.”

If things go the other direction, Chesapeake’s current sub-$1 share price suggests it could potentially wind up at risk of being delisted from the New York Stock exchange, which generally starts its delisting process once a stock trades at less than $1 for 30 days.

Back in 2011, the New York Times first reported that some industry analysts were deeply skeptical of the shale gas rush. “’Money is pouring in’ from investors even though shale gas is ‘inherently unprofitable,’ an analyst from PNC Wealth Management, an investment company, wrote to a contractor in a February e-mail. ‘Reminds you of dot-coms,’” The Times reported.

Historically, Chesapeake sought to make its money in large part by selling off its leased acreage to other drilling companies (a strategy that McClendon touted to investors all the way back in 2008, saying that “I can assure you that buying leases for X and selling them for 5X or 10X is a lot more profitable than trying to produce gas at $5 or $6/mcf.”).

But mergers and acquisition activity has slowed dramatically in the shale industry more recently, hitting their lowest point in a decade during the first three months of 2019. Activity rose in the second and third quarters of this year, but shale deals over the past three months added up to only half of the industry’s historic quarterly average.

While it’s not clear yet whether Chesapeake Energy might be dragged under by its roughly $10 billion in debts, what is clear is that the fracking pioneer has left significant environmental damage in its wake. In 2015, the Natural Resources Defense Council ranked the company its “most wanted” oil and gas company, calculating that Chesapeake had 669 spills and legal violations, more than any other driller in the U.S.