US shale pioneer- Chesapeake Energy, runs out of business under a mountain of debt

Oil and gas fracking giant- Chesapeake Energy has filed for bankruptcy in the middle of rising company debt determined by the fall in oil costs.


The Oklahoma City-based business stated that they had been compelled to enter chapter 11 protection owing to its dues of $9 billion were unmanageable. It has joined in a scheme with funders to trim $7 billion of the dues and told that it will continue to function as normal during the bankruptcy procedure.


Doug Lawler, Chesapeake President and CEO said: “We are fundamentally resetting Chesapeake’s capital structure and business to address our legacy financial weaknesses and capitalize on our substantial operational strengths.” 


“By eliminating approximately $7 billion of debt and addressing the legacy contractual obligations that have hindered our performance, we are positioning Chesapeake to capitalize on our diverse operating platform and proven track record of improving capital and operating efficiencies and technical excellence,” he further added. 


A leader in the fracking sector, Chesapeake Energy was using uncommon techniques to draw out oil and gas from the ground. The business was established in 1989 by Aubrey McClendon and Tom Ward with an initial $50,000 capital investment. They have concentrated on drilling in undeveloped regions of Oklahoma and Texas, hugely deserting conventional vertical well drilling, utilizing lateral drilling techniques to free natural gas from unusual shale formations. This procedure has come under inspection owing to its effect on the environment.


The energy giant, which has attained a market value above $37 billion, was first struck during the worldwide financial crisis of 2008, which set the energy costs into the abyss.


The 2020 oil price collapse during the global pandemic has led to the firm’s unexploited oil and gas funds to drop in value, making it tough to borrow against those assets.


Chesapeake reported an $8.3 billion net loss during the first quarter of 2020. It also announced about $9.5 billion in long-term debts and merely $82 million in cash.


Previously this month, Chesapeake capered interest payments of $13.5 million, in reference to the filings of the US Securities and Exchange Commission. The business had a 30-day grace term ahead of being considered in default.


The energy giant’s share cost has declined by beyond 93 percent since January, from $172 to $11.85 as of close on Friday.


A study published by the universal accountancy company Deloitte this month stated that the US shale sector is entering a duration of “great compression” and could confront to $300 billion in losses and a swing of insolvencies owing to the pandemic. Over 200 US oil producers have filed for bankruptcy protection in the former five years.

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