Shale pioneer Chesapeake considering bankruptcy

Chesapeake Energy Corp. is preparing a potential bankruptcy filing that could hand control of one of the leading lights of the U.S. shale revolution to senior lenders, according to people with knowledge of the matter.

The dwindling options for a powerhouse that once rivaled Exxon Mobil for title of king of American natural gas comes after Chief Executive Officer Doug Lawler’s seven-year effort to untangle the financial and legal legacies of Chesapeake’s late founder, Aubrey McClendon.

Mr. Lawler’s denouement, in turn, would signal the deep peril facing a shale industry largely built according to Mr. McClendon’s blueprint for Chesapeake: amassing incredible debts to pursue aggressive drilling programs that ultimately unearthed too little treasure to reward investors.

Gordon Pennoyer, a spokesman for Chesapeake, declined to comment. The talks with lenders come almost seven years to the date when Mr. Lawler assumed the helm at the Oklahoma City-based company at the behest of Carl Icahn and O. Mason Hawkins, then two of the driller’s biggest investors.

Chesapeake is negotiating a restructuring support agreement that could see holders of its so-called FILO term loan take a majority of the equity in bankruptcy, said the people, who asked not to be identified discussing confidential matters. The support agreement remains fluid and the terms could change, the people said.

Chesapeake, which owes about $9 billion, is debating whether to skip interest payments due on June 15 and invoke a grace period while it talks with creditors, the people said. No final decision has been made. The company has also begun soliciting lenders to provide debtor-in-possession financing to fund its operations during bankruptcy, one of the people said.

A bankruptcy filing by Chesapeake would reverberate well beyond its investors and employees because it will put millions of dollars in pipeline, fracking and other contracts at risk.

The company avoided delisting from the New York Stock Exchange earlier this year by resuscitating its ailing share price through a 1 -for-200 reverse stock split. On Monday, the shares more than tripled at one point to $84.75, then plunged after Bloomberg reported the potential Chapter 11 filing.

The rout continued in premarket trading Tuesday and was halted for more than three hours after circuitbreakers were triggered. The stock dropped as much as 74% upon resumption, only to spark another trading halt. A bankruptcy typically wipes out existing shareholders.