CHESAPEAKE Energy Corp today filed for Chapter 11, becoming the largest US 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.
The filing marks an end of an era for the Oklahoma City-based shale pioneer, and comes after months of negotiations with creditors. Reuters first reported in March the company had retained debt advisers.
Chesapeake was co-founded by Aubrey McClendon, an early and high profile advocate of shale drilling who died in 2016 in a fiery one-car crash in Oklahoma while facing a federal probe into bid rigging.
Over more than two decades, McClendon built Chesapeake from a small wildcatter to a top US producer of natural gas. It remains the sixth-largest producer by volume.
Current CEO Doug Lawler, who inherited a company saddled with about US$13 bil (RM55.8 bil) in debt in 2013, 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.
“Despite having removed over US$20 bil of leverage and financial commitments, we believe this restructuring is necessary for the long-term success and value creation of the business,” Lawler said in a statement announcing the filing.
Lawler last year spent US$4 bil on an ill-timed push to reduce Chesapeake’s reliance on natural gas.
The purchase sent its shares lower and this year the value of Chesapeake’s oil and gas holdings fell by US$700 mil this quarter.
The company last month warned it may not be able to continue operations.
Chesapeake plans to eliminate approximately US$7 bil of its debt, the statement said.
A separate court filing indicated that Chesapeake has more than US$10 bil in liabilities and assets, respectively.
Chesapeake’s outlook plunged this year as the coronavirus outbreak and a Saudi-Russia price war sharply cut energy prices and drove its first-quarter losses to more than US$8 bil.
On Friday, its stock traded at US$11.85, down 93% since the start of the year, leaving it with a market value of US$116 mil.
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 US$925 mil of debtor-in-possession (DIP) financing to help fund operations during the bankruptcy proceedings.
The agreement also has backing from portions of other creditors, including those behind 87% of its term loan, and holders of 60% and 27%, respectively, of its senior secured second lien notes due 2025, and senior unsecured notes.
While the statement does not name Chesapeake’s creditors, investment firm Franklin Resources is among the most significant.
On June 15, Reuters reported that Chesapeake’s impending restructuring would turn over control of the company to creditors including Franklin.
Chesapeake also has agreed the principal terms for a US$2.5 bil exit financing, while some of its lenders and secured note holders have agreed to backstop a US$600 mil offering of new shares, to take place upon exiting the Chapter 11 process, the statement added.
Chesapeake’s filing in US Bankruptcy Court for the Southern District of Texas makes it the largest bankruptcy of an US oil and gas producer since at least 2015, when law firm Haynes & Boone began publishing data on restructurings.
Chesapeake’s advisers are investment banks Rothschild & Co and Intrepid Partners, law firm Kirkland & Ellis LLP, and turnaround specialists Alvarez & Marsal. – June 29, 2020, Reuters
