US shale oil pioneer Chesapeake files for bankruptcy protection

Chesapeake Energy Shares Chart June 2020

Chesapeake plans to do away with $US7 billion of its debt, according to the filing, and will operate ordinarily during the Chapter 11 process.

As part of the restructuring agreement, its term loan lenders and secured note holders have pledged to provide it with $600 million beyond that, which the company would obtain by selling them available shares at a discounted rate. Factors that could cause actual results to differ materially from expected results are described under "Risk Factors" in Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and any updates to those factors set forth in the Company's subsequent quarterly reports on Form 10-Q or current reports on Form 8-K.

Last November, Lawler said the company would be able to improve its financial position despite issuing notice to investors that its debt load was about to surpass the terms of its credit facility.

In subsequent years, management sought to compensate for the decline in its gas fortunes by shifting into oil exploration as fracking turned the US into the world's largest producer of crude as well as a major exporter. The purchase sent its shares lower and this year the value of Chesapeake's oil and gas holdings fell by $700 million this quarter.

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. In April, Denver-based Whiting Petroleum also sought court protection from its lenders which are owed $3.6 billion. Niobrara, and Eagle Ford Shale. It largely abandoned traditional vertical well drilling, employing instead lateral drilling techniques to free natural gas from unconventional shale formations.

"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", he added.

"For the United States shale sector, there has been no bigger disruptor than Chesapeake", he said.

"We are fundamentally resetting Chesapeake's capital structure and business to address our legacy financial weaknesses and capitalize on our substantial operational strengths", Chesapeake President and CEO Doug Lawler said. The company was founded in 1989 by Aubrey McClendon and Tom Ward with an initial $50,000 investment.

Frackers like Chesapeake Energy focused on drilling in underdeveloped areas of Oklahoma and Texas. "It was likely going to happen with or without COVID-19", said Alex Beeker, an analyst with the consultancy Wood Mackenzie, in a note Sunday.

Chesapeake shares were halted during early trading Monday. "Remember, they brought worldwide upstream investors back to USA onshore".

About a decade ago, Chesapeake was a US$37.5 billion giant at the forefront of the fracking revolution that transformed the U.S. oil and gas industry. The achievement also came with high costs and a lot of borrowing.

The heavy debt load it acquired in the process was a burden it ultimately could not shake off.

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