Long Term Debt Brings Chesapeake To Bankruptcy Amid COIVD-19 Energy Downturn

Chesapeake acquired a heavy debt load as it expanded aggressively earlier in its history

Chesapeake acquired a heavy debt load as it expanded aggressively earlier in its history

That month Chesapeake warned the US Securities and Exchange Commission through a "going concern" filing that it was considering the court-supervised bankruptcy process as it revealed it would likely not meet its obligations to lenders. The company will continue operations at a much reduced capacity, with a handful of gas rigs and no oil rigs, according to those familiar with the company's plans. The DIP financing will provide Chesapeake the capital necessary to fund its operations during the Court-supervised Chapter 11 reorganization proceedings.

The company said it entered into a Restructuring Support Agreement with 100% of its lenders under the revolving credit facility; holders of about 57% of the obligations under its Term Loan Agreement; about 60% of its senior secured second lien notes due 2025; and roughly 27% of its senior unsecured notes. "With these demonstrated strengths, and the benefit of an appropriately sized capital structure, Chesapeake will be uniquely positioned to emerge from the Chapter 11 process as a stronger and more competitive enterprise", said Doug Lawler, Chesapeake's president and chief executive officer in a prepared statement. In the Powder River Basin, Crestwood’s midstream assets are supported by a 358,000 acreage dedication by Chesapeake and a 30,000 acreage dedication by Panther Energy, as well as dedications by other producers in the basin.

In the league of United States-based oil and gas producers, Chesapeake is now the largest hydrocarbon explorer to have gone bankrupt in recent years.

According to the statement the company has reached an agreement with "a majority of its creditors", effectively wiping off $7 billion of debt, and had secured further debtor-in-possession financing to secure a further $925 million.

The company filed for Chapter 11 in the Bankruptcy Court for the Southern District of Texas on Sunday.

Chesapeake lost an eye-popping $8.3 billion in the first quarter of this year, and it listed $8.62 billion in net debt. One of the first concrete signs of an imminent filing for bankruptcy protection came though in May when the pandemic's effect on oil prices was well-established.

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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. Earlier in its history, under the direction of its late co-founder Aubrey McClendon, a colourful and outspoken advocate for the natural gas industry, Chesapeake expanded aggressively.

In 2019, Chesapeake produced 484,000 barrels of oil equivalent per day, of which 69% was natural gas.

But the gas market is only part of the story.

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

"This is a financial restructuring, and we will continue to operate our business as usual", Lawler told employees in a Sunday letter. Thanks to Lawler's strategy that included asset sales and aggressive cost cuts, the USA natural gas producer was able to minimise its debt pile in recent years.

At £9.65 per share, the £94.13 million company is more than 90% down year to date in the stock market.

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