Shale pioneer Chesapeake Energy files for bankruptcy

Chesapeake filed for Chapter 11, becoming the largest US oil and gas producer to seek bankruptcy protection in recent years as it bowed to heavy debts and the impact of the coronavirus outbreak on energy markets
Reuters Monday, 29 June 2020

Chesapeake Energy Corp filed for Chapter 11, becoming the largest US oil and gas producer to seek bankruptcy protection in recent years as it bowed to heavy debts and the impact of the coronavirus outbreak on energy markets.

The filing marks an end of an era for the Oklahoma City-based shale pioneer and comes after months of negotiations with creditors. Reuters first reported in March the company had retained debt advisers.

Chesapeake was co-founded by Aubrey McClendon, an early and high profile advocate of shale drilling who died in 2016 in a fiery one-car crash in Oklahoma while facing a federal probe into bid-rigging. Over more than two decades, McClendon built Chesapeake from a small wildcatter to a top US producer of natural gas. It remains the sixth-largest producer by volume.

Current CEO Doug Lawler, who inherited a company saddled with about $13 billion in debt in 2013, managed to chip at the debt pile with spending cuts and asset sales, but this year’s historic oil price rout left Chesapeake without the ability to refinance that debt.

Lawler last year spent $4 billion on an ill-timed push to reduce Chesapeake’s reliance on natural gas. The purchase sent its shares lower and this year the value of Chesapeake’s oil and gas holdings fell by $700 million this quarter. The company last month warned it may not be able to continue operations.

Chesapeake plans to eliminate approximately $7 billion of its debt, the statement said. A separate court filing indicated that Chesapeake has more than $10 billion in liabilities and assets, respectively.

Chesapeake’s outlook plunged this year as the coronavirus outbreak and a Saudi-Russia price war sharply cut energy prices and drove its first-quarter losses to more than $8 billion. On Friday, its stock traded at $11.85, down 93% since the start of the year, leaving it with a market value of $116 million.

The company has entered into a restructuring support agreement, which has the backing of lenders to its main revolving credit facility - some of which are providing $925 million of debtor-in-possession (DIP) financing to help fund operations during the bankruptcy proceedings.

Chesapeake’s filing in US Bankruptcy Court for the Southern District of Texas makes it the largest bankruptcy of an US oil and gas producer since at least 2015, when law firm Haynes & Boone began publishing data on restructurings.

Chesapeake’s advisers are investment banks Rothschild & Co and Intrepid Partners, law firm Kirkland & Ellis LLP, and turnaround specialists Alvarez & Marsal.

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