It’s been rumored for weeks, but Chesapeake Energy Corp. on Sunday filed for voluntary Chapter 11 bankruptcy protection to facilitate what it called a comprehensive balance sheet restructuring, Kallanish Energy reports
The Oklahoma-based company was once the No. 2 producer of natural gas in the United States but is now wrestling with $9 billion in debt.
The debt had been as high as $16 billion in 2016.In 2019.
The Chapter 11 paperwork was filed with the U.S. Bankruptcy Court in the Southern District of Texas.
Chesapeake said it will use the restructuring proceeds to strengthen its balance sheet and restructure its legacy contractual obligations to advance a more-sustainable capital structure.
The company said it will proceed with normal operations during the restructuring.
The company said it entered into a Restructuring Support Agreement with 100% of its lenders under the revolving credit facility, holders of about 57% of the obligations under its Term Loan Agreement, about 60% of its senior secured second lien notes due 2025 and about 27% of its senior unsecured notes.
Chesapeake said it plans to implement a Chapter 11 plan to eliminate about $7 billion in debt.
The company has secured a $925 million in debtor-in-possession financing from certain lenders under its revolving credit facility. That money for operations will be available once it is approved by the bankruptcy court.
The company and certain creditors have also agreed to $2.5 billion in exit financing including a $700 million loan and a New $1.75 billion revolving credit facility.
The company also has the support of its term loan lenders and secured noteholders to backstop a $600 million rights offering upon exit.
“We are fundamentally resetting Chesapeake’s capital structure and business o address our legacy financial weaknesses and capitalize on our substantial operational strengths,’ said CEO Doug Lawler in a statement.
Eliminating $7 billion in debt will make the company stronger coming out of Chapter 11, he said.
“Despite having removed over $20 billion of leverage and financial commitments, we believe restructuring is necessary for the long-term success and value creation of the business,” he said.
In the last year years, the company had been working to reduce debt, divest its non-core assets, and move from natural gas to more lucrative crude oil.
The company was founded in 1989 by the late Aubrey McClendon and Tom Ward. It went public in 1993.
It took its name from the East Coast bay that they liked as young men.
It used horizontal drilling and hydraulic fracturing or fracking. It was aggressive. McClendon was colorful and charismatic. It drilled its first two wells in Garvin County, Oklahoma.
It became a big sponsor of the National Basketball Association’s Oklahoma City Thunder team that played in Chesapeake Arena.
McClendon was ousted from the company in 2013 and Ward also departed. McClendon died in 2016 in a one-car accident, one day after he had had been indicted by a federal grand jury on a price-fixing charge.
In 2019, it produced 484,000 barrels of oil equivalent per day, of which 69% was natural gas.
It produced natural gas in the Marcellus Shale in West Virginia and Pennsylvania, the Haynesville Shale in Louisiana and Texas, Eagle Ford Shale in South Texas, the Brazos Valley in Texas, the Powder River Basin in Wyoming and Montana and the Mid-Continent in Oklahoma.
This post appeared first on Kallanish Energy News.