A worker on a Chesapeake Energy natural gas rig in Fort Worth, Texas
Matt Nager | Bloomberg | Getty Images
On Sunday, Chesapeake Energy, the poster child of the United States shale revolution, filed for bankruptcy protection. The move came when society and industry in general were shaken by a drop in oil and gas prices amid the coronavirus pandemic.
The heavily indebted company has been in trouble for some time and said in May that it had concerns about its long-term profitability.
Chesapeake said $ 7 billion in debt will be wiped out through the restructuring. The company secured $ 925 million in borrower loans in order to continue operations as well as an additional $ 600 million commitment for new shares once the company has gone bankrupt.
Franklin Resources and Fidelity are among the largest creditors, according to people close to the company, and will be among the main holders of shares following the company̵
“We are substantially restoring Chesapeake’s capital structure and assets to address our legacy financial weaknesses and capitalize on our substantial operational strengths,” said CEO Doug Lawler in a statement.
Chesapeake Energy was founded in 1989 by Aubrey McClendon. Initial pioneer of horizontal drilling, it has transformed the company into a key player in the US gas sector. At its peak, Chesapeake had 175 operating plants, with operations in the United States, including Texas, Louisiana, Pennsylvania and Ohio.
But the company took on many debts to fuel its rapid expansion and from 2010 to 2012 spent $ 30 billion more on drilling and leasing than it did on its operations.
McClendon was finally expelled from the company in 2013 and in 2016 he was indicted on the federal charge of conspiring to offer rigs for the rental of oil and natural gas for a new business he had started. The following day, McClendon died in a car accident.
When the current CEO Dough Lawler succeeded him, the company had almost the same debt as Exxon and Chevron put together.
“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 in a statement. “While removing over $ 20 billion in leverage and financial commitments, we believe this restructuring is necessary for long-term success and business value creation.”
The Chesapeake crisis is not unique. Whiting Petroleum is among other major drills that once could not survive a historic slump in oil prices. The company filed for bankruptcy protection on April 1.
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