Ch­e­sa­peake’s col­lapse is lat­est in long line of shale ca­su­al­ties

National Post (National Edition) - - FINANCIAL POST - DAVID WETHE

The shale bust has reached a grim milestone by claim­ing the pi­o­neer of Amer­ica’s drilling re­nais­sance. But Ch­e­sa­peake En­ergy Corp., which filed for bank­ruptcy pro­tec­tion on Sunday, is just the lat­est in a long list of ca­su­al­ties.

More than 200 North Amer­i­can oil and gas pro­duc­ers, ow­ing over US$130 bil­lion in debt, have filed for bank­ruptcy since the be­gin­ning of 2015, ac­cord­ing to a May re­port from law firm Haynes & Boone. This month alone, seven oil and gas com­pa­nies have gone un­der, ty­ing De­cem­ber 2015 for the busiest on record after crude prices plunged amid the COVID-19 pan­demic, ac­cord­ing to data com­piled by Bloomberg.

The shale boom spear­headed by the likes of Ch­e­sa­peake a decade ago was fu­elled by debt. Prof­itabil­ity and share­holder re­turns have been con­sis­tently dis­ap­point­ing, and in­vestors had al­ready grown wary of throw­ing more money into shale be­fore this year’s oil crash. The rate of de­fault on high-yield en­ergy debt stood at 11 per cent, Fitch Rat­ings said in a June 11 re­port, the high­est level since April 2017.

Here are a hand­ful other no­table shale bank­rupt­cies so far this year:

Whit­ing Pe­tro­leum

An oil ex­plorer fo­cused on the Bakken Shale in North Dakota, Whit­ing Pe­tro­leum Corp. was al­ready fac­ing head­winds prior to 2020. Last year, the Den­ver-based com­pany an­nounced it would fire a third of its work­force and scale back pro­duc­tion tar­gets after post­ing a sur­prise quar­terly loss.

Crude prices had their worst quar­ter ever in the first three months of 2020, with oil heavy­weights Saudi Ara­bia and Rus­sia fail­ing to agree on sup­ply cuts just as worldwide lock­downs wiped out de­mand for fuel. That was enough to push Whit­ing, sad­dled with US$3.6 bil­lion in debt, into bank­ruptcy on April 1.

But not be­fore the board ap­proved US$14.6 mil­lion in cash bonuses for top ex­ec­u­tives in or­der to “en­sure the sta­bil­ity and con­ti­nu­ity of the com­pany’s work­force and elim­i­nate any po­ten­tial mis­align­ment of in­ter­ests that would likely arise if ex­ist­ing per­for­mance met­rics were re­tained,” the com­pany said in a fil­ing the same day it filed for Chap­ter 11 pro­tec­tion.

Ex­trac­tion Oil & Gas

An­other Colorado driller, Ex­trac­tion Oil & Gas Inc. fo­cused ex­clu­sively on the Den­ver-Jules­burg Basin in the Rock­ies. It filed for Chap­ter 11 on June 15, of­fer­ing to ease its debt bur­den of roughly US$1.5 bil­lion by giv­ing note hold­ers 97 per cent of new com­mon stock to be is­sued.

Ex­trac­tion had with­drawn its 2020 guid­ance in May and warned it may have to file for bank­ruptcy. Then, in early June, the com­pany an­nounced plans to pay 16 ex­ec­u­tives and se­nior man­agers a to­tal of US$6.7 mil­lion in re­turn for stay­ing with Ex­trac­tion ahead of a pos­si­ble de­fault on its bond pay­ments.

Ul­tra Pe­tro­leum

Once wasn’t enough. Ul­tra Pe­tro­leum Corp. filed for its sec­ond bank­ruptcy in May, four years after its first. List­ing US$2.56 bil­lion in debt and US$1.45 bil­lion in as­sets in its Chap­ter 11 fil­ing, the Englewood, Colorado, driller reached a deal with most of its se­nior cred­i­tors that would slash US$2 bil­lion in debt, while look­ing to re­struc­ture within three months.

In its strug­gles to stay afloat, Ul­tra went so far as to sus­pend its drilling pro­gram in Jan­uary to bol­ster free cash flow and fo­cus on pay­ing down debt. The ex­plorer first filed for bank­ruptcy in 2016 and emerged the fol­low­ing year, just as the shale patch was be­gin­ning to crawl out of what had been the worst oil in­dus­try crash in a gen­er­a­tion — un­til this year.

Sable Permian Re­sources

Soon after his ouster from Ch­e­sa­peake in 2013, co­founder Aubrey McClen­don went to work build­ing a new em­pire, Amer­i­can En­ergy Part­ners. But after McClen­don died in a car crash three years later, the com­pany shut down.

Part of that busi­ness, Amer­i­can En­ergy — Permian Basin, merged with Sable Permian Re­sources LLC last year. That par­tic­u­lar busi­ness was widely seen as hav­ing among the best as­sets of a half dozen oil-and-gas ac­qui­si­tion ve­hi­cles that McClen­don set up dur­ing his brief ten­ure at Amer­i­can En­ergy Part­ners.

Sable filed for bank­ruptcy last week in Hous­ton along­side af­fil­i­ates, list­ing at least US$1 bil­lion of as­sets and li­a­bil­i­ties each.

Lilis En­ergy

The Permian ex­plorer Lilis En­ergy Inc. fol­lowed right on the heels of Ch­e­sa­peake, fil­ing for bank­ruptcy pro­tec­tion on Mon­day.

The com­pany said it was a vic­tim of the coro­n­avirus-in­duced down­turn. Lilis was strug­gling even be­fore the pan­demic, warn­ing in Jan­uary that it might de­fault after lenders slashed its credit line.

“Like many com­pa­nies in the oil and gas in­dus­try, we have been im­pacted by the se­vere down­turn in com­mod­ity prices through­out the COVID-19 pan­demic,” Joseph C. Daches, Lilis’s chief ex­ec­u­tive of­fi­cer, said in a state­ment an­nounc­ing the fil­ing.

FILES

The once mighty Ch­e­sa­peake En­ergy Cor­po­ra­tion, head­quar­tered in Ok­la­homa City, spear­headed a shale boom but one that was fu­elled by debt.

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