Shale pi­o­neer Ch­e­sa­peake files for bank­ruptcy

Arab News - - Business News - Reuters New York

Ch­e­sa­peake En­ergy filed for Chap­ter 11, be­com­ing the largest US 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.

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 US 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 in a state­ment an­nounc­ing the fil­ing. 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.

Ch­e­sa­peake plans to elim­i­nate ap­prox­i­mately $7 bil­lion of its debt, the state­ment said. A sep­a­rate court fil­ing in­di­cated that Ch­e­sa­peake has more than $10 bil­lion in li­a­bil­i­ties and as­sets, re­spec­tively. Ch­e­sa­peake’s out­look plunged this year as the coro­n­avirus out­break and a SaudiRus­sia price war sharply cut en­ergy prices and drove its first quar­ter losses to more than $8 bil­lion. On Fri­day, its stock traded at $11.85, down 93 per­cent since the start of the year, leav­ing it with a mar­ket value of $116 mil­lion.

The com­pany has en­tered into a restruc­tur­ing sup­port agree­ment, which has the back­ing of lenders to its main re­volv­ing credit fa­cil­ity — some of which are pro­vid­ing $925 mil­lion of debtor-in-pos­ses­sion (DIP) fi­nanc­ing to help fund op­er­a­tions dur­ing the bank­ruptcy pro­ceed­ings. The agree­ment also has back­ing from por­tions of other cred­i­tors, in­clud­ing those be­hind 87 per­cent of its term loan, and hold­ers of 60 per­cent and 27 per­cent, re­spec­tively, of its se­nior se­cured sec­ond lien notes due 2025, and se­nior un­se­cured notes. While the state­ment does not name Ch­e­sa­peake’s cred­i­tors, in­vest­ment firm Franklin Re­sources is among the most sig­nif­i­cant. On June 15, Reuters re­ported that Ch­e­sa­peake’s im­pend­ing restruc­tur­ing would turn over con­trol of the com­pany to cred­i­tors in­clud­ing Franklin.

Ch­e­sa­peake also has agreed the prin­ci­pal terms for a $2.5 bil­lion exit fi­nanc­ing, while some of its lenders and se­cured note hold­ers have agreed to back­stop a $600 mil­lion of­fer­ing of new shares, to take place upon ex­it­ing the Chap­ter 11 process, the state­ment added.

BACK­GROUND

Ch­e­sa­peake En­ergy was co­founded 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.

AP

Ok­la­homa City-based shale drilling pi­o­neer Ch­e­sa­peake En­ergy helped to turn the US into an en­ergy pow­er­house.

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