Chesapeake Energy comes out of bankruptcy


Chesapeake Energy, the most publicized victim of the turmoil that swept through the U.S. shale industry last year, emerged from bankruptcy on Tuesday, vowing that an era of debt-fueled supply growth was over.

Of the society Chapter 11 filing June was a milestone in the pandemic-induced oil crash, as a spearhead of the shale revolution collapsed under a mountain of liabilities accumulated over years of soaring spending and expansion.

Its reappearance coincides with a 12 month high oil prices and signals the start of a new chapter for the shale sector, as operators pledge to prioritize shareholder returns, not supply growth.

“It’s a new era,” said Doug Lawler, CEO of Chesapeake. “It’s a question of responsibility, profitability and discipline.

Lawler said his company would be a smaller, more focused operator, determined to spend without exceeding its cash flow.

“We are no longer forced to seek cash flow to service the debt,” he told the Financial Times. “This is a fundamental reset of the legacy obligations that impacted our performance in the past. “

Chesapeake’s debts when it filed for bankruptcy last year amounted to more than $ 9 billion. The court-approved deal reached with its creditors last month eliminates about $ 7 billion in debt and will permanently reduce $ 1 billion in annual operating costs.

The company also secured $ 2.5 billion in exit financing and the lenders agreed to back a $ 600 million rights offer.

Chesapeake will end 2021 with just $ 500 million in net debt – less than the annual interest payments it has made in recent years – and generate $ 2 billion in free cash flow over the next five years, Lawler said. .

The company would reinvest 60-70% of its cash flow in production in the future, he said, echoing recent promises from other shale executives to limit supply growth. Chesapeake’s oil production would decline this year and next, while natural gas production would increase only modestly, if at all, Lawler said.

After last year’s crash, U.S. oil and gas executives united around a mantra of the discipline of capital, focusing on margins and not on production growth. This is a big change for an industry where spectacular drilling successes in recent years have made the United States the world’s largest producer of oil and gas.

Lawler has suggested that the “reset” of Chesapeake – a company once synonymous to many investors with the excesses of the shale patch – could now help lead reform.

“We feel a great responsibility to all stakeholders in an industry that has not performed well on capital efficiency and has not performed well for the investment community,” Lawler told the FT .

Chesapeake lost its listing on the New York Stock Exchange after going bankrupt last year, but will begin trading on the Nasdaq on Wednesday. The Houston court that approved the company’s reorganization last month valued the company at around $ 5 billion, although some analysts now say it could be worth close to $ 8 billion.

Chesapeake embodied exuberance of the shale sector because it has built a huge land position and incurred colossal debts in the process. The company was for a time one of the largest producers of natural gas in the United States.

It was part of a strategy for growth at any cost established under Aubrey McClendon, the founder of the company who was once America’s highest-paid CEO. He died in a car accident in 2016, a day after being charged with bid-rigging.

The company’s total liabilities peaked at nearly $ 30 billion in 2012 after years of accumulating land to drill for natural gas and signing contracts with pipeline companies to bring future supplies to market. Analysts said the company got into shale oil too late.

The restructured Chesapeake will once again focus more narrowly on natural gas, reserving new capital only for assets that offer “exceptional returns,” Lawler said. This will include low-cost equilibrium gas fields in the Marcellus Shale in the northeastern United States and the Haynesville Shale in Texas and Louisiana, analysts said.

Lawler also told the FT his company would end its routine natural gas flaring, cooperate with President Joe Biden’s crackdown on methane emissions and achieve zero direct greenhouse gas emissions by 2035. Payment of executives would be tied to environmental goals, he said.

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