Chesapeake emerges from bankruptcy as CEO Lawler sees ‘new era’ for shale
Through Sergio Chapa to 02/10/2021
Doug Lawler, CEO of Chesapeake Energy
(Bloomberg) – Chesapeake Energy, the once-iconic energy explorer who helped spark America’s shale gas boom, is emerging from bankruptcy protection like a shadow of itself. And in a way, it’s great with his boss.
“Shale has been marked by growth, and growth for all the wrong reasons,” said Doug Lawler, CEO of the company, in an interview. “What we see in the future is a new era for shale.”
The driller left Chapter 11 protection on Tuesday. Co-founder and ex-CEO Aubrey McClendon, who died in 2016 three years after being kicked out in a boardroom revolt led by Carl Icahn, is long gone. Chesapeake’s place in the pantheon of major US energy producers like Exxon Mobil Corp. and Chevron Corp. charged.
These days, Chesapeake is refined, mellowed, and looking to find his way into a shale industry that has undergone a painful evolution. Lawler, who has run the company since 2013 (and who says bankruptcy could have been avoided had it not been for the 2020 oil crash) oversaw a 90% reduction in its workforce. As recently as last week, the company carried out another round of job cuts at its Oklahoma City campus and decided to redevelop the sprawling site, much of which is now surplus to needs.
Chesapeake is also committed to producing free cash flow, an increasingly common mantra in shale that has been heavily criticized by shareholders for prioritizing production growth over returns on investment. Their stigma is understandable: over the past decade, the industry has suffered losses of over $ 300 billion. Lawler, 54, said the days of burning shale silver were over.
“They are absolutely over,” he said. “Investors and the market demand it. It requires that we return more money to shareholders and that we have more discipline in our activities. It also requires improvements in ESG.
Chesapeake stock jumped 16% to $ 49.97 at 9.44 a.m. in New York City on its post-bankruptcy debut on Wednesday.
Lawler, a former head of overseas exploration at Anadarko Petroleum Corp., dismantled the personality cult that had prevailed in Chesapeake even after McClendon left and instituted an austere and pragmatic focus on financial returns. Under his tenure, Chesapeake reduced his debt by more than half.
But the turnaround was too small and too late given the company’s cash flow demands by debtors just as the pandemic crippled economies – and energy use – around the world. Chesapeake filed for bankruptcy protection in June, with more than $ 9 billion in debt.
The filing came just months after the company refinanced billions of debt. During the course of the case, noteholders and other unsecured creditors claimed that Chesapeake was undervaluing much of its undeveloped real estate and demanded a higher payment.
U.S. bankruptcy judge David Jones sided with the company and approved Chesapeake’s reorganization plan despite the committee’s objection. But Jones found that Chesapeake was worth around $ 5 billion, hundreds of millions more than the company’s estimate.
Departures of experts
Still carrying $ 1.27 billion in debt, the hydraulic fracturing pioneer is breaking out of Chapter 11, with energy markets looking a little better than they were a year earlier. Oil recovered in 2021 after Saudi Arabia slashed production, while in gas, US inventories are expected to end the winter at below normal levels due to freezing weather and robust foreign orders .
But Chesapeake is also re-entering the realm of publicly traded drillers without many of the assets and in-house experts he could previously call upon. Not only did Chesapeake auction off top-tier gas fields in an unsuccessful attempt to stay afloat, but it also fired many of the geologists, engineers and physicists who were among the most experienced shale specialists in the world.
Despite the job cuts, the company’s multigenerational workforce has enough expertise to maximize the value of Chesapeake’s asset base, spokesman Gordon Pennoyer said.
“We’re going to offer a very competitive free cash flow generation machine that has a disciplined approach to our capital reinvestment rate, that has a very solid and disciplined approach to our cash costs – focused not only on profitability but also on sustainability, ”Lawler said.
Chesapeake plans to use $ 1.3 billion in new funding to focus on drilling for gas in the Marcellus shale in Pennsylvania and the Haynesville area of Louisiana. The company is also committed to phasing out flaring – the intentional combustion of excess gas at remote well sites – by 2025 and achieving zero net greenhouse gas emissions by 2035.
“What is clear from the development plans is that Chesapeake will become a natural gas growth company anchored by Marcellus and Haynesville while the oil assets are tapped to generate free cash flow,” wrote Josh Silverstein, analyst. from Wolfe Research LLC, in a note to clients.