Chesapeake Energy, the son of the American shale revolution, filed for bankruptcy on Sunday. The move comes as the company and industry in general have been rocked by a drop in oil and gas prices amid the coronavirus pandemic.
The heavily indebted company has been in trouble for some time, and in May said it had concerns regarding its long-term viability.
Chesapeake said $ 7 billion in debt will be eliminated through the restructuring. The company has secured $ 925 million in debt-in-possession financing to continue operations during the bankruptcy process. In addition, Chesapeake has secured an agreement in principle from certain existing lenders for $ 2.5 billion in debt financing upon exiting bankruptcy, as well as a pledge of support for $ 600 million in new shares.
Franklin Resources and Fidelity are among the top creditors, according to people close to the company, and will be among the top equity holders after the company restructuring. The company will continue to operate at a very small capacity, with a handful of gas platforms and no oil platforms, according to those familiar with the company’s plans.
“We are fundamentally restoring Chesapeake’s capital structure and businesses to address our inherited financial weaknesses and capitalize on our substantial operating strengths,” CEO Doug Lawler said in a statement.
Chesapeake Energy was founded in 1989 by Aubrey McClendon. An early pioneer of horizontal drilling, it made the company a key player in the US gas industry. At its peak, Chesapeake had 175 operating platforms, with operations throughout the United States, including Texas, Louisiana, Pennsylvania, and Ohio.
But the company took on huge debt to fuel its rapid expansion, and from 2010 to 2012 spent $ 30 billion more on drilling and leasing than it got from its operations.
The fracking giant’s bankruptcy filing comes after a financial disaster at the company that did not include budgets, a massive wine collection and a nine-figure parking bill, sources told CNBC’s David Faber.
CEO Robert D. “Doug” Lawler found by examining the company’s books a $ 110 million bill for two parking lots, Faber reported Monday. Other revelations include a wine collection in a cave hidden behind a broom closet in the Chesapeake office. The extravagances also included a season ticket package for the NBA’s Oklahoma City Thunder, which was the largest in the league, and a luxurious Duke University-inspired campus, complete with beekeepers, botox treatments, and chaplains for employees.
McClendon was eventually expelled from the company in 2013, and in 2016 he was charged with federal charges of conspiring to manipulate oil and natural gas lease offers for a new company that had started. The following day, McClendon died in a car accident.
When current CEO Doug Lawler succeeded him, the company had almost as much debt as Exxon and Chevron combined.
“In recent years, our dedicated employees have transformed the Chesapeake business, improving capital efficiency and operating performance, eliminating costs, reducing debt, and diversifying our portfolio,” Lawler said in a statement. “Despite having removed more than $ 20 billion of leverage and financial commitments, we believe this restructuring is necessary for the long-term success and value creation of the business.”
The Chesapeake recession 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.
