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Chesapeake Energy Corp., the archetype for America’s extraordinary shale-gas fortunes, filed for bankruptcy, becoming one of the biggest victims of a spectacular collapse in energy demand from the virus-induced global lockdown.
The Oklahoma City-based company filed for Chapter 11 protection from creditors in U.S. Bankruptcy Court in the Southern District of Texas.
The company also entered into an agreement to eliminate about $7 billion in debt and secure $925 million in debtor-in-possession financing, Chesapeake said Sunday in a statement.
”We are fundamentally resetting Chesapeake’s capital structure and business to address our legacy financial weaknesses and capitalize on our substantial operational strengths,” Chief Executive Officer Doug Lawler said in the statement. “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.”
Chesapeake is partly a victim of its own success — and that of its peers — in extracting gas from shale basins, which contributed to a global glut and weighed on prices. Even before the coronavirus, the company had struggled for years with a heavy debt load accumulated during an earlier period of aggressive expansion.
About a decade ago, Chesapeake was a $37.5 billion giant led by the late Aubrey McClendon, a colorful and outspoken advocate for the natural gas industry. It was at the forefront of the fracking revolution that transformed the U.S. oil and gas industry by setting off a scramble for previously untapped shale reserves. The company cut eye-popping checks to Fort Worth businesses and residents as inducements to drill on their land in the Barnett Shale of North Texas, America’s first shale field to hit the big time.
Those heady days didn’t last. U.S. natural gas slumped after the financial crisis as the frackers overwhelmed demand, and prices still haven’t revisited their previous highs. Investors soured on Chesapeake, which by that point wasn’t only debt-laden but saddled with a real estate empire that included shopping centers, a church, and a grocery store. McClendon was ousted in 2013 and was killed in an auto accident three years later.
In subsequent years, management sought to compensate for the decline in its gas fortunes by shifting into oil exploration as fracking turned the U.S. into the world’s largest producer of crude as well as a major exporter. However, any optimism about that strategy evaporated with oil’s recent price collapse amid the Covid-19 pandemic.
Lawler took over Chesapeake in 2013 with an aim of reducing its debt load that was larger than Exxon Mobil Corp.’s, a company 29 times Chesapeake’s market value at the time. He had counted on capital spending cuts and asset sales to cover debt obligations. The company was in talks last year with Jerry Jones, the billionaire Dallas Cowboys owner, about a $1 billion sale of shale assets, but no deal resulted.
In May, Lawler was forced to discard his company’s full-year outlook and write down the value of $8.5 billion in assets as energy demand tumbled amid the Covid-19 lockdown. By then, the producer’s market value had dropped to less than $200 million.
The bankruptcy follows that of another high-flyer in the U.S. oil patch, Whiting Petroleum Corp., which filed for Chapter 11 at the start of April after championing what was once the premiere U.S. shale field, the Bakken of North Dakota.
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