Chesapeake Energy Files For Chapter 11 Bankruptcy

Marco Green
June 29, 2020

Reuters first reported in March the company had retained debt advisers. Once valued at $37 billion, Chesapeake, based in Oklahoma City, had been the country's second-largest producer of natural gas.

Chesapeake Energy was founded in 1989 by Aubrey McClendon. It remains the sixth-largest producer by volume. "By eliminating approximately $7 billion of debt and addressing the legacy contractual obligations that have hindered our performance, we are positioning Chesapeake to capitalize on our diverse operating platform and proven track record of improving capital and operating efficiencies and technical excellence". Lawler 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.

"We are fundamentally resetting Chesapeake's capital structure and business to address our legacy financial weaknesses and capitalize on our substantial operational strengths", CEO Doug Lawler said in a statement. The agreement cost Chesapeake $3 million the first season and was set to increase by 3% each year following. The purchase sent its shares lower, and the value of Chesapeake's oil and gas holdings fell by $700m this quarter.

"The company was forced to make some hard decisions, notably whether or not to keep drilling unprofitable wells to support EBITDA just to avoid breaching debt covenants", Beeker continued.

Natural gas prices chart
Natural gas prices have fallen by more than 85 percent since 2008

The filing also showed Chesapeake's plans to operate an average of just six rigs between Appalachia and the Gulf Coast in the third and fourth quarters, compared with 14 across several US fields in the first quarter.

Joachim Klement, an analyst at the stockbroker Liberum, said the lowest-cost oil producing nations such as Saudi Arabia and its partners in the oil cartel, the Organisation of Petroleum Exporting Countries, could act to keep prices at about $40 per barrel to heighten pressure on Russian Federation.

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 $925m of debtor-in-possession (DIP) financing to help fund operations during the bankruptcy proceedings.

Franklin Resources and Fidelity are among the biggest creditors, according to people close to the company, and they will be among the primary equity holders following the company's restructuring. On June 15, Reuters reported that Chesapeake's impending restructuring would turn over control of the company to creditors including Franklin. "With these demonstrated strengths, and the benefit of an appropriately sized capital structure, Chesapeake will be uniquely positioned to emerge from the Chapter 11 process as a stronger and more competitive enterprise". "Chesapeake's bankruptcy flagrantly shows that these risks are no longer on the horizon, but at companies' doorstep". Chesapeake's team of advisers are investment banks Rothschild & Co and Intrepid Partners, law firm Kirkland & Ellis LLP, and turnaround specialists Alvarez & Marsal.

Other reports by Click Lancashire

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