Chesapeake Energy is asking for protection for the failures in Chapter 11, the Oklahoma energy giant announced on Sunday. The move follows the company’s years of efforts to cut costs and reduce the mountains of debt left behind by former CEO Aubrey McClendon’s free spending leadership. Current CEO Doug Lawler says Chesapeake Energy will continue to function normally and pay its employees. Chapter 11 allows companies to restructure their debt and assets, as opposed to a Chapter 7 bankruptcy, in which a company will liquidate its assets and stop operating. “We are basically restoring Chesapeake’s capital structure and assets to address our legacy financial weaknesses and capitalize on our substantial operational strengths,”
Chesapeake Energy has filed for Chapter 11 bankruptcy protection, the Oklahoma energy giant announced on Sunday.
The move follows years of efforts by the company to cut costs and reduce the mountains of debt left behind by the free spending leadership of former CEO Aubrey McClendon.
Current CEO Doug Lawler says Chesapeake Energy will continue to function normally and pay its employees. Chapter 11 allows companies to restructure their debt and business activities, as opposed to a Chapter 7 bankruptcy in which a company will liquidate its businesses and cease to function.
“We are substantially restoring Chesapeake’s capital structure and assets to address our legacy financial weaknesses and capitalize on our substantial operational strengths,” Lawler said in a press release. “By eliminating approximately $ 7 billion in 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 in improving capital, operating efficiencies and technical excellence.”
“With these proven strengths and the advantage of an appropriately sized capital structure, Chesapeake will be uniquely positioned to emerge from the Chapter 11 process as a stronger and more competitive venture.
“In addition to securing funding to fund our ongoing operations and facilitating our exit from this process, we are delighted to have the support of our term lenders and guaranteed note holders to support a $ 600 million rights offer, demonstrating their trust in the Chesapeake operating platform and future “.
No immediate or long-term impact has been given to hundreds of Chesapeake employees, many of whom are based in Oklahoma. The company had downsized significantly in recent years.
“We deeply appreciate the hard work and commitment of our employees, who remain focused on the safe and efficient execution of our business,” said Lawler. We are looking forward to working productively with our suppliers, business partners and all stakeholders during this process. “
Further information on the presentation of Chesapeake Energy on Sunday will be made available on its website. Judicial questions and information about the complaint process are available here.
Chesapeake was one of the pioneers of the shale revolution. Fracking has allowed the company to grow and grow rapidly, but as debt has accumulated, energy prices have been unable to keep up. Sources familiar with the challenges Chesapeake faces say expansion and spending have been reckless.
Between 2010 and 2012, in two of the last few years McClendon has managed the company, Chesapeake has spent approximately $ 30 billion more in drilling and leasing than it has done in its operations.
Sources speak of lavish expenses for employee benefits and services on the Oklahoma City campus. A person familiar with the company’s spending says that Chesapeake was paying large donations to charity by borrowing money.
McClendon was expelled in 2013. When current CEO Doug Lawler took over, Chesapeake had $ 21.5 billion in debt and liability on his books, almost as much as Exxon and Chevron put together. Chesapeake has eliminated much of the debt, but annual interest payments have become excessive when energy prices have gone down and remained low.
In recent months, speculation has increased considerably regarding the impending bankruptcy. The company remained on the New York Stock Exchange this year asking its shareholders to agree on an inverse distribution of the shares, essentially cutting the number of shares but significantly increasing their value.
“In recent years, our dedicated employees have transformed Chesapeake’s business, improving capital efficiency and operating performance, eliminating costs, reducing debt and diversifying our portfolio,” said Lawler. “While removing over $ 20 billion in leverage and financial commitments, we believe this restructuring is necessary for long-term success and business value creation.”
Chesapeake Energy and McClendon, its founder, have made a huge impact on the development of Oklahoma City. McClendon was one of the main forces to bring Seattle SuperSonics to Oklahoma, and was one of the owners of the new Oklahoma City Thunder. The arena in which the NBA team now plays is the Chesapeake Energy Arena.
There is no immediate word on how today’s news affects that naming deal. The development in the area surrounding the company’s campus can be directly linked to Chesapeake, including Classen Curve and the arrival of the luxury food chain Whole Foods.
This is a developing story. Stay with KOCO 5 for more details.