Chesapeake reaches bankruptcy milestone
There is much that remains to be done before Chesapeake formally emerges from bankruptcy.
But Doug Lawler, the company's CEO, told employees in an email sent Thursday morning said a judge's approval of its exit plan late Wednesday marked “a critical milestone” in its future.
The ruling, he said, puts the company on a path “towards fundamentally resetting our company and preparing us to emerge a stronger and more competitive enterprise.”
The ruling by Judge David R. Jones sets the stage for the company to rejoin a business world where it can freely operate once again.
No changes in Chesapeake's executive leadership team are expected, although a filing in the case states its existing board of directors will be replaced when the company's equity owners assume control of the new business.
Lawler, the filing states, will keep a seat on the new board.
New board members will be:
• Michael Wichterich, the founder and CEO of Three Rivers Operating Co. Three Rivers, headquartered in Austin, Texas, has an operational focus on the Permian Basin. Wichterich, who also serves on boards for Grizzly Energy and Bruin E&P, will be chairman of Chesapeake's board.
• Timothy S. Duncan, the founder and CEO of Talos Energy. Duncan also serves as a director at Talos, which is an oil and gas company that operates in the Gulf of Mexico.
• Benjamin C. Duster, the founder and CEO of Cormorant IV Corp., a finance operations and strategic advisory firm organized in 2014.
• Sarah Emerson, president of Energy Security Analysis, Inc., a company that researches, consults on and forecasts trends on markets related to global petroleum, natural gas and natural gas liquids, alternative fuels and vehicle technologies.
• Matthew M. Gallagher, who had been the CEO and a director at Parsley Energy Inc. Parsley, focused on Permian operations, was acquired by
Pioneer Natural Resources in an all-stock deal valued at $4.5 billion this week. Gallagher joined Pioneer's board of directors as part of that transaction.
• Brian Steck, chairman of the board at Bonanza Creek Energy. Bonanza Creek, a potential acquisition target for SandRidge Energy in late 2017 until SandRidge investors led by Carl Icahn deep sixed that plan, focuses its operations in the Wattenberg Field of the Niobrara Shale basin.
Bankruptcy details
When it filed its case, Chesapeake owed creditors $8.9 billion, and the plan approved by Jones on Wednesday ties a bow around a package of actions that will shed $7 billion of that debt.
The company also will exit bankruptcy with $600 million raised through a backstopped equity rights offer and with $2.5 billion in exit financing to fund its ongoing operations.
“We initiated our restructuring process to fundamentally reset our company and emerge a stronger and more competitive enterprise, and with today's confirmation of our plan, we are well on our way to achieving that objective,” spokesman Gordon Pennoyer said late Wednesday. “We greatly appreciate the court's thorough consideration of our case and look forward to concluding this process as expeditiously as possible.”
As for Chesapeake's future operating profile, a previous filing in the case provides some details.
Chesapeake stated it plans to continue operating in the Marcellus Shale field of the Appalachia Basin, the Eagle Ford Shale in the Rio Grande and Brazos River fields of Texas, the Haynesville Shale field in Louisiana and within the Powder River Basin in Wyoming.
Its Mid- Continent operations were sold in November as part of the bankruptcy process to Oklahoma City- based Tapstone Energy for $130.5 million.
Tapstone is led by former Chesapeake Energy Corp. executive Steve Dixon.
As part of the bankruptcy case, Chesapeake also previously had projected out its general and administrative and operating expenses over a five- year period that covers 2021 through 2025, aiming to hold administrative expenses at $187 million annually and cutting operating expenses from about $1.3 billion this year to just more than $1 billion in 2025.
Part of those calculations involve projected realized pricing the company expects to receive for West Texas Intermediate oil and Henry Hub natural gas it produces.
The company expects it will get between $40 and $ 45 a barrel for oil over the five years and at least $2.25 per million British thermal units of natural gas. It plans to drop hedging strategies for both in 2023.
Chesapeake projected it would earn total revenues of about $3 billion in 2021, about $2.5 billion in 2022, about $2.3 billion in 2023 and about $2.25 billion in 2024 and in 2025.
It also projected it would generate free cash flows of $725 million in 2021, $364 million in 2022, $274 million in 2023, $251 million in 2024 and $260 million in 2025.
The company stated it had identified $ 2.5 billion in potential savings opportunities over the next decade, and noted that $1.75 billion of that is locked in to its postbankruptcy plans.
The regulatory filing was required by an agreement it signed with certain holders of its funded debt as the bankruptcy process was underway, it stated.
Lawler also wrote to employees on Thursday that he intends to keep lines of communication open with them about Chesapeake's future during the coming weeks.
“I look forward to sharing additional details regarding our path forward and will do so as we get closer to emergence. In the meantime, thank you for continuing to support each other and our business. Stay safe,” Lawler wrote.
Business writer Jack Money covers Oklahoma's energy and agricultural beats for the newspaper and Oklahoman. com. Contact him at jmoney@oklahoman.com. Please support his work and that of other Oklahoman journalists by purchasing a subscription today at oklahoman.com/subscribe.