Chesapeake Energy Corp. yesterday filed for chapter 11 protection, becoming the largest U.S. 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, Reuters reported. 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 U.S. 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. 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. Read more.
In related news, Chesapeake Energy Corp.’s bankruptcy will pile more pain onto leading energy service and pipeline companies whose revenues were already being slammed during the latest collapse in oil prices, according to energy analysts and corporate filings, Reuters reported. Williams Cos., Energy Transfer and Crestwood Equity Partners have contracts with Chesapeake that face rate cuts or rejections in bankruptcy court, said Ryan Smith, a senior director at energy information provider East Daley Capital. Consolidated Edison Inc. earlier this month asked U.S. gas regulators to declare Chesapeake must seek approval before canceling regulated natural gas contracts in bankruptcy court. Crestwood last month lowered its 2020 pre-tax earnings forecast by $60 million, but said it expected to generate “significant free cash flow” this year and next. Williams, one of the largest natural gas pipeline operators, reduced its exposure to Chesapeake, to 6% of revenue from 18 percent five years ago, and expects to continue providing services amid any restructuring, said Vice President Laura Creekmur. Patterson-UTI Energy, the driller that acquired a former Chesapeake unit, said in a February regulatory filing that under a tax-sharing agreement it could face a “material adverse effect” were Chesapeake to fail to pay taxes potentially due on the split. Ahead of the bankruptcy filing, Patterson-UTI said it did not believe it has “material exposure to any Chesapeake liability” based on its earlier filings. Read more.
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