Shale pioneer Chesapeake files for bankruptcy

Oklahoma City-based shale drilling pioneer Chesapeake Energy helped to turn the US into an energy powerhouse. (AP)
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Updated 30 June 2020

Shale pioneer Chesapeake files for bankruptcy

  • The filing marks an end of an era for the Oklahoma City-based shale pioneer

NEW YORK: Chesapeake Energy 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 $13 billion 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 $20 billion 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 $4 billion 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 $700 million this quarter. The company last month warned it may not be able to continue operations.

Chesapeake plans to eliminate approximately $7 billion of its debt, the statement said. A separate court filing indicated that Chesapeake has more than $10 billion 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 $8 billion. On Friday, its stock traded at $11.85, down 93 percent since the start of the year, leaving it with a market value of $116 million.

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 $925 million 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 percent of its term loan, and holders of 60 percent and 27 percent, 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 $2.5 billion exit financing, while some of its lenders and secured note holders have agreed to backstop a $600 million 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.


Demand issues ‘to overshadow OPEC+ supply next year’

Updated 29 October 2020

Demand issues ‘to overshadow OPEC+ supply next year’

  • Libya's rising production adding to pressure on oil markets

DUBAI: The Organization of the Petroleum Exporting Countries (OPEC) and its allies will have to contend with a “lot of demand issues” before raising supply in January 2021, given throughput cuts by oil refiners, the head of Saudi Aramco’s trading arm said.
OPEC and its allies plan to raise production by 2 million barrels per day (bpd) from January after record output cuts this year as the coronavirus pandemic hammered demand, taking overall reductions to about 5.7 million bpd. 

“We see stress in refining margins and see a lot of refineries either cutting their refining capacity to 50-60% or a lot of refineries closing,” Ibrahim Al-Buainain said an interview with Gulf Intelligence released on Wednesday.

“I don’t think the (refining) business is sustainable at these rates (refining margins).”

However, Chinese oil demand is likely to remain solid through the fourth quarter and into 2021 as its economy grows while the rest of the world is in negative territory, he added.

Among the uncertainties facing the oil market are rising Libyan output on the supply side and a second wave of global COVID-19 infections, especially in Europe, on the demand side, Al-Buainain said.

Complicating efforts by other OPEC members and allies to curb output, Libyan production is expected to rebound to 1 million bpd in the coming weeks.

Oil prices, meanwhile, fell over 4 percent on Wednesday as surging coronavirus infections in the US and Europe are leading to renewed lockdowns, fanning fears that the unsteady economic recovery will deteriorate.

“Crude oil is under pressure from the increase in COVID-19 cases, especially in Europe,” said Robert Yawger, director of energy futures at Mizuho in New York.

Brent futures fell $1.91, or 4.6 percent, to $39.29 a barrel, while US West Texas Intermediate crude fell $2.05, or 5.2 percent, to $37.52.

Earlier in the day Brent traded to its lowest since Oct. 2 and WTI its lowest since Oct. 5.

Futures pared losses somewhat after the US Energy Information Administration (EIA) said a bigger-than-expected 4.3 million barrels of crude oil was put into storage last week, but slightly less than industry data late Tuesday which showed a 4.6 million-barrel build.

However, crude production surged to its highest since July at 11.1 million barrels per day in a record weekly build of 1.2 million bpd, the data showed.

Gasoline demand has also been weak overall, down 10 percent from the four-week average a year ago. US consumption is recovering slowly, especially as millions of people restrict leisure travel with cases surging nationwide.