Fracking pioneer Chesapeake Energy has filed for bankruptcy, being the biggest US producer to have caved in amid an oil-price crash that is causing damage to the country’s energy sector.
After skipping interest payments this month, and with bonds maturing this year that were last trading for only about 5 cents on the dollar, it was expected that the company would declare bankruptcy.
“We are fundamentally resetting Chesapeake’s capital structure and business to address our legacy financial weaknesses and capitalise on our substantial operational strengths,” said Doug Lawler, Chesapeake’s chief executive.
The company said it had gained agreement with the majority of its creditors to eliminate $7bn (€6.2bn, €5.6bn) of debt and had secured $925m of debtor-in-possession financing to continue operating through the bankruptcy. Chesapeake’s management is expected to remain in place during the restructuring.
The company has filed for Chapter 11 protection in the US Bankruptcy Court for the Southern District of Texas. As part of the restructuring, lenders have agreed to provide $2.5bn in financing on its exit from bankruptcy, made up of a $1.75bn revolving credit facility and a $750m term loan.
Lenders will also backstop a $600m rights offer on its bankruptcy exit.
By the end of May, 18 US exploration and production companies had filed for bankruptcy this year, according to law firm Haynes and Boone.
Founded in 1989, Chesapeake went public in 1993 but it was not until the 2000s that the company’s ‘moment’ arrived, as hydraulic fracturing and horizontal drilling unleashed vast new reserves of trapped shale gas from Texas to Pennsylvania.
Chesapeake’s market worth reached more than $35bn in 2008. On Friday, the company’s market capitalisation was just $116m.