Chesapeake Energy files for Chapter 11 bankruptcy protection in the U.S.

on Jun 29, 2020
  • Chesapeake Energy files for Chapter 11 bankruptcy protection in the U.S.
  • The hydrocarbon explorer has £8.11 billion of assets and liabilities.
  • Chesapeake reported £6.49 billion of losses in the first quarter.

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Chesapeake Energy Corp. (NYSE: CHK) lost the battle against the economic hit from COVID-19 as it filed for Chapter 11 bankruptcy protection on Sunday. In the league of United States-based oil and gas producers, Chesapeake is now the largest hydrocarbon explorer to have gone bankrupt in recent years.  

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At £9.65 per share, the £94.13 million company is more than 90% down year to date in the stock market. Learn more about the financial analysis of a company.

Chesapeake failed to refinance its debt in 2020

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Chesapeake’s filing in the U.S. Bankruptcy Court (Southern District of Texas) is like to weigh heavily on the energy service and pipeline firms that have already been struggling to combat the lower oil prices this year.

The shale pioneer submitted to the rising debts after months-long negotiations with its creditors. Chesapeake brought its current chief executive, Doug Lawler, onboard in 2013 when the company was struggling to pull out of roughly £10.55 billion in debt. Thanks to Lawler’s strategy that included asset sales and aggressive cost cuts, the U.S. natural gas producer was able to minimise its debt pile in recent years.

The crash in global oil prices in 2020 ascribed to COVID-19 driven slump in demand, however, turned into the final nail in the coffin for Chesapeake as it failed to refinance the debt this year. According to Lawler’s statement on Sunday:

“Despite having removed over £16.23 billion of leverage and financial commitments, we believe this restructuring is necessary for the long-term success and value creation of the business.”

Chesapeake reported £6.49 billion of losses in the first quarter

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The ongoing struggle wiped about £568 million off Chesapeake’s market capitalisation in the recently ended quarter, following which, the Oklahoma-based company had warned last month that it was uncertain if it will be able to sustain operations in the upcoming months.

Chesapeake reported £6.49 billion of losses in the first quarter. As per the court filing, its assets and liabilites are currently valued at £8.11 billion, and the company is aiming at slashing its debt by £5.68 billion. Some of its lenders have pledged debtor-in-possession (DIP) financing worth £750 million to support operations during bankruptcy proceedings. Chesapeake also said that a £2.03 billion exit financing has also been agreed in principle.

Law firm Kirkland & Ellis, investment banks Intrepid Partners, and Rothschild & Co., and turnaround specialists Alvarez & Marsal are serving as Chesapeake’s advisers.

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