A worker on a Chesapeake Energy natural gas platform in Fort Worth, Texas
Matt Nager | Bloomberg | fake pictures
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, as well as an additional $ 600 million commitment for new shares once the company emerges from bankruptcy.
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.
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 Dough Lawler succeeded him, the company had almost the same 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.
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