Chesapeake was as soon as the nation’s No. 2 pure fuel producer, because of early bets on fracking. Aubrey McClendon, Chesapeake’s late founder and CEO, was thought of one of many leaders of the shale growth that reworked america into the world’s largest oil and pure fuel producer.
However extra just lately, chapter rumors had swirled round Chesapeake (CHK) as the company grappled with depressed vitality costs, a poorly timed push into oil and a mountain of debt.
The coronavirus disaster exacerbated these challenges. Regardless of a recent recovery to $40 a barrel, the price of oil has fallen sharply this yr due to extra provide and a pointy drop in demand attributable to worldwide stay-at-home orders.

Chesapeake’s share value has dropped greater than 93% since January, from $172 to $11.85 as of shut on Friday.

Earlier this month, Chesapeake skipped curiosity funds of $13.5 million, in accordance with filings with the US Securities and Trade Fee. The corporate had a 30-day grace interval earlier than it might be thought of in default.

“Within the present commodity value surroundings, Chesapeake is burning money on the similar time manufacturing is declining, which isn’t sustainable,” stated Spencer Cutter, credit score analyst at Bloomberg Intelligence.

Chesapeake said in a statement Sunday that the Chapter 11 chapter safety would assist it to “strengthen its steadiness sheet and restructure its legacy contractual obligations to attain a extra sustainable capital construction.”
The corporate posted an $8.three billion web loss throughout the first quarter of 2020. It additionally reported almost $9.5 billion in long run liabilities, and simply $82 million in money.
30% of shale oil companies could go belly up if crude stays this cheap

As a part of the method, Chesapeake stated it has secured $925 million in financing underneath a revolving credit score facility. It additionally reached an settlement with lenders to eradicate round $7 billion in debt, and locked in a future dedication of $600 million in new fairness.

“We’re essentially resetting Chesapeake’s capital construction and enterprise to deal with our legacy monetary weaknesses and capitalize on our substantial operational strengths,” Chesapeake CEO Doug Lawler stated in a press release. He added that the corporate is positioning itself to “capitalize on our various working platform and confirmed observe document of bettering capital and working efficiencies and technical excellence.”

Debt issues exacerbated by disaster

Chesapeake, based in 1989 with an preliminary funding of $50,000, and has lengthy been generally known as a significant pure fuel producer.

“For the US shale sector, there was no greater disruptor than Chesapeake,” Alex Beeker, principal analyst at Wooden Mackenzie, stated in a press release Sunday.

Continued low-cost fuel costs persuaded the corporate to make an enormous guess on oil, an enlargement marked by a $four billion deal in October 2018 to purchase Texas driller WildHorse Useful resource Growth that proved to be poorly timed.

Chapter rumors have swirled round Chesapeake for years as low oil and fuel costs made it tough for the corporate to repay its pile of debt.

In April, the corporate’s inventory crashed so low that it turned to a 1-for-200 stock split to adjust to trade itemizing necessities. Chesapeake suspended dividend funds on most well-liked inventory.

In Could, Chesapeake warned it might not be capable of keep in enterprise as a result of it had “no entry to capital” and “unsure financial situations” had been impacting its enterprise companions.

30% of US shale is technically bancrupt

Already this yr, 18 oil-and-gas firms have defaulted on their debt, in comparison with 20 for all of final yr, in accordance with a S&P International Scores tally from earlier this month.

Chesapeake is simply the most recent oil firm to file for chapter safety.

Former shale star Whiting Petroleum (WLL) sought Chapter 11 in April, marking the first major oil producer to seek bankruptcy for the reason that pandemic struck. Whiting was valued at almost $5 billion as just lately as late 2018.
Diamond Offshore (DO), which conducts drilling for main oil firms together with Hess (HES) and BP (BP), filed for bankruptcy protection in late April.

Analysts have warned that dozens extra US oil and fuel firms could succumb as properly.

About 30% of US shale operators are technically bancrupt at $35-a-barrel oil costs, in accordance with a latest Deloitte research. The report estimated that the shale business will probably be pressured to write down down the worth of its belongings by as a lot as $300 billion.