Chesapeake Energy, pioneer of shale revolution in the US, seeks bankruptcy protection

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Chesapeake Energy, the poster child for the American shale revolution, filed for bankruptcy on Sunday. The move comes after business and industry more broadly were shaken by falling oil and gas prices amid the coronavirus pandemic.The heavily indebted company has been struggling for some time and said in May that it had concerns about its long-term viability.

Chesapeake said $ 7 billion in debt will be canceled through the restructuring. The company has secured debtor-in-possession financing of $ 925 million to continue operations, as well as an additional commitment of $ 600 million for new equity after the company is bankrupt.

Franklin Resources and Fidelity are among the main creditors, according to people close to the company, and they will be among the main shareholders after the restructuring of the company. The company will continue to operate at a very reduced capacity, with a handful of gas platforms and no oil platforms, according to those who know of the company’s plans.

“We are fundamentally resetting the capital structure and operations of Chesapeake to address our legacy financial weaknesses and take advantage of our large operational strengths,” said CEO Doug Lawler in a statement.

Chesapeake Energy was founded in 1989 by Aubrey McClendon. A pioneer in horizontal drilling, he has made the company a key player in the US gas industry. At its peak, Chesapeake had 175 operational platforms, with operations in the United States, including Texas, Louisiana, Pennsylvania and Ohio.

But the company has incurred many debts to fuel its rapid expansion and, from 2010 to 2012, it spent $ 30 billion more on drilling and leasing than it got from operations.

McClendon was eventually ousted from the company in 2013 and, in 2016, was charged with federal charges of conspiracy to rig oil and natural gas rental deals for a new business he had launched. The following day, McClendon died in a car accident.

When the current CEO, Doug Lawler, succeeded him, the company had almost as much debt as Exxon and Chevron combined.

“In the past few years, our dedicated employees have transformed the business of Chesapeake – improving capital efficiency and operational performance, eliminating costs, reducing debt and diversifying our portfolio,” Lawler said in a statement. “Although we have removed more than $ 20 billion in leverage and financial commitments, we believe this restructuring is necessary for the long-term success and creation of business value. ”

The slowdown in Chesapeake is not unique. Whiting Petroleum is one of the other major drillers who could not survive a historic drop in oil prices. The company filed for bankruptcy on April 1.

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