Chesapeake Energy Files For Bankruptcy Protection

01 Juillet, 2020, 04:24 | Auteur: Auguste Feret
  • Chesapeake acquired a heavy debt load as it expanded aggressively earlier in its history

Chesapeake Energy filed for Chapter 11, becoming the largest U.S. 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. It has been in negotiations with its primary creditors on a restructuring agreement, the company said in a statement Sunday.

Chesapeake has secured a $925 million in debtor-in-possession financing from certain lenders under its revolving credit facility. Some term loan lenders and secured note holders have also agreed to backstop a $600mn offering of new shares.

"We are fundamentally resetting Chesapeake's capital structure and business to address our legacy financial weaknesses and capitalize on our substantial operational strengths", Chesapeake President and CEO Doug Lawler said.

The company said it hoped to come out of chapter 11 with a strengthened "balance sheet and restructure its legacy contractual obligations".

"Despite having removed over $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 Sunday. It has focused on drilling in underdeveloped areas of Oklahoma and Texas, largely abandoning traditional vertical well drilling, employing instead lateral drilling techniques to free natural gas from unconventional shale formations.

The company fell victim to its own success after pioneering the shale drilling process in the United States, which led to natural gas prices falling from $20 per million British thermal units to below $2 due to the high supply created by the firm and its competitors.

In subsequent years, management sought to compensate for the decline in its gas fortunes by shifting into oil exploration as fracking turned the USA into the world's largest producer of crude as well as a major exporter.

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In May, Mr 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. In the Powder River Basin, Crestwood’s midstream assets are supported by a 358,000 acreage dedication by Chesapeake and a 30,000 acreage dedication by Panther Energy, as well as dedications by other producers in the basin.

The bankruptcy follows that of Whiting Petroleum, another major U.S. shale player, two months ago.

Chesapeake lost $416 million in 2019, and its stock lost 60% of its value, falling from about $430 to about $170 a share.

"They brought global upstream investors back to U.S. onshore".

Considering only its asset base, the company is attractive, Beeker said.

"But - and it's a big but - it's hard to make any upstream assets look good with almost $1bn in interest and G&A expenses per year". It is highly likely that there will be more bankruptcies in the sector this year if the situation does not improve.

"Both represent oil growth potential should oil prices recover". The expansion was entirely fueled by debt, which crippled the company when its own success as a producer - and the success of its later rivals - drove the price of natural gas down almost 90 percent.

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