Chesapeake Energy Corporation, a US oil and gas company specialising in unconventional onshore reserves, has filed for voluntary Chapter 11 bankruptcy protection in the US Bankruptcy Court for the Southern District of Texas.
Chesapeake says that the Chapter 11 proceedings will allow it to strengthen its balance sheet and restructure its legacy contractual obligations, ultimately making the company more robust and sustainable.
The company has executed a restructuring support agreement to eliminate $7 billion (€6.2 billion) of debt with the majority of its creditors, and has secured debtor-in-possession (DIP) financing of $925 million from lenders. This will allow it to fund its operations and so continue to operate normally during the bankruptcy and restructuring process. When exiting bankruptcy, Chesapeake will hold a $600 million rights offering for existing shareholders, which its term loan lenders have agreed to backstop, meaning the lenders will purchase any remaining shares following the rights offering. It has also sought ‘first day’ relief, allowing it to pay owner royalties, employees wages and benefits, and vendors and suppliers.
‘By eliminating approximately $7 billion of debt and addressing the legacy contractual obligations that have hindered our performance, we are positioning Chesapeake to capitalise on our diverse operating platform and proven track record of improving capital and operating efficiencies and technical excellence,’ says Doug Lawler, Chesapeake’s President and Chief Executive Officer, adding: ‘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 also said that the backstop agreement showed the confidence of Chesapeake’s lenders in its operating platform and future and thanked the company’s ‘dedicated’ employees for their efforts.
Chesapeake, headquartered in Oklahoma City, was founded in 1989 and was one of the early pioneers of the use of hydraulic fracturing to release gas from shale. It has assets in major US shale plays including Marcellus, Powder River Basin and Eagle Ford. However, Chesapeake racked up huge debts in developing these assets, and while they are productive, the company has been hit with a series of financial blows, including the 2008 financial crisis, charges of rigging bids for oil and gas contracts, which were costly to settle, and then rock bottom gas prices, which led to losses. In recent years it has sold assets and pared back the company in an attempt to tackle the mounting debt.
In the first quarter of 2020, Chesapeake reported net losses of more than $8 billion, and warned then that it may struggle to continue.
Analysts have noted that it is not the first oil and gas driller to file for bankruptcy this year, and warned that other debt-laden US oil and gas companies may follow suit as the effects of the ongoing pandemic and the collapsing oil price continue to be felt.