A employee on a Chesapeake Energy pure gasoline rig in Fort Worth, Texas

Matt Nager | Bloomberg | Getty Images

Chesapeake Energy, the poster youngster of the U.S. shale revolution, filed for bankruptcy protection on Sunday. The transfer comes as the firm and business extra broadly has been rocked by a drop in oil and gasoline costs amid the coronavirus pandemic.

The closely indebted firm has been in bother for a while, and in May mentioned that it had considerations concerning its long-term viability.

Chesapeake mentioned that $7 billion in debt can be worn out by means of the restructuring. The firm has secured $925 million in debtor-in-possession financing in order to proceed operations throughout the bankruptcy course of. In addition, Chesapeake has secured an settlement in precept from sure present lenders for $2.5 billion in debt financing on emergence from bankruptcy, in addition to a backstop dedication for $600 million in new fairness.

Franklin Resources and Fidelity are amongst the greatest collectors, in accordance with folks near the firm, and they are going to be amongst the major fairness holders following the firm’s restructuring. The firm will proceed operations at a a lot lowered capability, with a handful of gasoline rigs and no oil rigs, in accordance with these acquainted with the firm’s plans.

“We are fundamentally resetting Chesapeake’s capital structure and business to address our legacy financial weaknesses and capitalize on our substantial operational strengths,” CEO Doug Lawler mentioned in a assertion. 

Chesapeake Energy was based in 1989 by Aubrey McClendon. An early pioneer of horizontal drilling, he constructed the firm into a key participant in the U.S. gasoline business. At its peak, Chesapeake had 175 working rigs, with operations throughout the U.S. together with in Texas, Louisiana, Pennsylvania and Ohio.

But the firm took on a lot of debt to gas its fast growth, and from 2010 to 2012 spent $30 billion extra in drilling and leasing than it constructed from its operations.

McClendon was finally ousted from the firm in 2013, and in 2016 was indicted on federal expenses of conspiring to rig bids for oil and natural gas leases for a new enterprise he had began. The following day, McClendon perished in a car crash.

When present CEO Doug Lawler succeeded him, the firm had practically as a lot debt as Exxon and Chevron mixed.

“Over the last several years, our dedicated employees have transformed Chesapeake’s business — improving capital efficiency and operational performance, eliminating costs, reducing debt and diversifying our portfolio,” Lawler mentioned in a assertion. “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’s downturn just isn’t distinctive. Whiting Petroleum is amongst the different as soon as nice drillers that could not survive a historic plunge in oil costs. The firm filed for bankruptcy protection on April 1.

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