Shale Oil Company Chesapeake Energy Files For Bankruptcy

Chesapeake Energy Corporation CHK filed for bankruptcy on Sunday to carry out balance sheet restructuring. 

What Happened

According to CEO Doug Lawler, by filing for Chapter 11, Chesapeake will eliminate $7 billion in debt and address its legacy financial weaknesses. It would also be able to take advantage of its operational strengths.

Lawler said, “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.”

The shale oil company has secured $925 million in debtor-in-possession financing under its revolving credit facility for continuing operations during the Chapter 11 process and another $600 million commitment from its lenders and noteholders upon emerging from bankruptcy. 

Why It Matters

Chesapeake’s troubles have been exacerbated by a fall in the prices of oil and gas caused by the pandemic. 

Between 2010 and 2012, the company’s debt burgeoned as it attempted to fuel expansion. Chesapeake spent $30 billion more drilling and leasing than it garnered from its operations during this period.

According to CNBC’s sources, Chesapeake will now scaled back concern with only a small portion of its gas rigs and with no oil rigs left operational.

The company’s largest creditors include Franklin Resources, Inc BEN and Fidelity National Financial Inc FNF. 

Chesapeake’s debt equaled that of both Exxon Mobil Corporation XOM and Chevron Corporation CVX combined when Lawler began his stint in 2013.

The company’s founder Aubrey McClendon was ousted as CEO in 2013 and indicted on federal conspiracy charges in 2016. He died a day after the indictment in a fiery car crash. 

Price Action

Chesapeake Energy shares traded 0.34% higher at $11.89 in the after-hours session on Friday. The shares had closed the regular session 7.28% lower at $11.85.