Chesapeake Energy Corp, the archetype for the US’ extraordinary shale-gas fortunes, filed for bankruptcy, becoming one of the biggest victims of a spectacular collapse in energy demand from the global lockdown induced by COVID-19.
The Oklahoma City-based company on Sunday filed for Chapter 11 protection from creditors in the US Bankruptcy Court in the Southern District of Texas, listing assets and liabilities in the range of US$10 billion and US$50 billion, and more than 100,000 creditors.
The firm also entered into an agreement to eliminate about US$7 billion in debt and secure US$925 million in debtor-in-possession financing.
“We are fundamentally resetting Chesapeake’s capital structure and business to address our legacy financial weaknesses and capitalize on our substantial operational strengths,” chief executive officer Doug Lawler said in a statement.
Chesapeake is, to an extent, a victim of the success it and its peers had in extracting huge volumes of gas from previously hard-to-exploit shale basins. While that turned the US into a global supplier of the fuel to rival any other, it also contributed to a glut that weighed on prices.
Natural gas futures in New York last week traded at a 25-year low.
However, the gas market is only part of the story. Earlier in its history, under the direction of late cofounder Aubrey McClendon, a colorful and outspoken advocate for the natural gas industry, Chesapeake expanded aggressively. The heavy debt load it acquired in the process was a burden it ultimately could not shake off.
McClendon was ousted in 2013 and died in an auto accident three years later.
Despite the company’s efforts over the years to address leverage and profitability, “the recent and dramatic drop in commodity prices and resulting tightening of the credit markets have frustrated the Debtors’ ability to further deleverage absent a chapter 11 proceeding,” Chesapeake chief financial officer Domenic Dell’Osso wrote in a declaration in support of the bankruptcy filings.
Lawler took over the company in 2013 with an aim of reducing its debt load, which was larger than Exxon Mobil Corp’s, a company 29 times Chesapeake’s market value at the time. He had counted on capital spending cuts and asset sales to cover debt obligations.
The company was in talks last year with billionaire Dallas Cowboys owner Jerry Jones about a US$1 billion sale of shale assets, but no deal resulted.
Last month, Lawler was forced to discard his company’s full-year outlook and write down the value of US$8.5 billion in assets as energy demand tumbled amid the COVID-19 lockdown.
By then, the producer’s market value had dropped to less than US$200 million. The company had about 2,300 employees at the end of last year.
“Despite having removed over US$20 billion of leverage and financial commitments, we believe this restructuring is necessary for the long-term success and value creation of the business,” Lawler said on Sunday.
The bankruptcy follows that of another highflier in the US oil patch, Whiting Petroleum Corp, which filed for Chapter 11 protection at the beginning of April.
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