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Chesapeake considering bankruptcy filing
US
CHESAPEAKE Energy has said in a filing with US securities regulators that it is considering options, including filing for Chapter 11 bank- ruptcy protection. The company had already been struggling to pay down its debt load before taking another hit from the latest oil price col- lapse in March. Indeed, there has been specula- tion since March that Chesapeake will be among the first companies to file for bankruptcy pro- tection as a result of the latest downturn, along with Whiting Petroleum, which announced its Chapter 11 filing in April.
Chesapeake filed its first-quarter results with regulators, but said on May 11 that as a result of market turmoil, it had withdrawn its finan- cial outlook for 2020, issued in late February. In this outlook – issued before the oil price crash – Chesapeake had anticipated a 30% year-on-year capital expenditure cut in 2020.
The first-quarter filing with the US Securities and Exchange Commission (SEC) showed that Chesapeake’s net loss attributable to sharehold- ers had increased to $8.3bn, or $852.97 per share, from a $44mn loss, or $6.37 per share, owing to $8.5bn of asset impairments. The impairment figure illustrates the potentially fatal blow dealt by the oil price collapse.
“We currently have no access to capital and other financial markets,” Chesapeake warned in its filing. “In response to the lack of new capital and funding, we are considering strategic alter- natives, which may include but are not limited to additional expense reductions; seeking a restruc- turing, amendment or refinancing of existing debt through a private restructuring; and reor- ganisation under Chapter 11 of the Bankruptcy Code.”
The company did not hold a conference call
or webcast to discuss its latest results.
In its filing, Chesapeake said it had shut in wells and delayed turn-in lines, which it said would reduce its projected oil output by around 50% in May and 37% in June. The company is currently anticipating spending $500-700mn over the remainder of 2020, and said it would primarily focus on its gas assets. This marks yet another turnaround, as the operator originally rose to prominence as a gas driller, and indeed was once the second-largest gas producer in the US. In recent years it had been pivoting away
from gas to more profitable oil.
Chesapeake noted that it still hopes to return
wells to production and complete drilled but uncompleted (DUC) wells as market conditions improve. However, given the growing bearish- ness on crude prices, a strong enough recovery to enable Chesapeake to return wells to production in the near future appears unlikely.
This is the second warning issued by Chesa- peake over its ability to operate as a going con- cern since November 2019.
In an effort to cut costs, Chesapeake laid off about 13% of its workforce in April. The com- pany had about 2,300 employees at the end of 2019, and over the last quarter it terminated the contracts of the majority of employees who joined the company through its $4bn acquisi- tion of WildHorse Resource Development in 2019.
Last week, Chesapeake said it would prepay $25mn in incentives to top executives. Whiting handed out cash awards to senior management just days before filing for Chapter 11 bankruptcy protection, so it is not surprising that this move by Chesapeake has helped fuel speculation over a looming bankruptcy filing.™
Chesapeake is turning its focus back to its gas assets while it figures out its next steps.
This is the second warning issued by Chesapeake over its ability to operate as a going concern since November 2019.
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w w w . N E W S B A S E . c o m Week 19 14•May•2020