The oil and gas company Chesapeake Energy Corporation has filed for voluntary Chapter 11 bankruptcy protection in the US Bankruptcy Court for the Southern District of Texas.

The company said it has executed a restructuring support agreement “to eliminate $7 billion of debt” with the majority of its creditors and has “secured debtor-in-possession (DIP) financing of $925 million from lenders”. 

The move was made to strengthen the company’s balance sheet and restructure its legacy contractual obligations, “ultimately making the company more robust and sustainable”, it said. 

By way of explanation it said the filing will allow it to fund its operations and so continue to operate normally during the bankruptcy and restructuring process. 

When exiting bankruptcy, Chesapeake will hold a $600 million rights offering for existing shareholders, which its term loan lenders have agreed to backstop, meaning the lenders will purchase any remaining shares following the rights offering. 

The company has also sought “first day relief”, which means it can pay owner royalties, employees’ wages and benefits, as well as vendors and suppliers.

Doug Lawler, Chesapeake’s President and Chief Executive Officer, said: “By eliminating approximately $7 billion of debt and addressing the legacy contractual obligations that have hindered our performance, we are positioning Chesapeake to capitalise on our diverse operating platform and proven track record of improving capital and operating efficiencies and technical excellence.”

He added: “Despite having removed over $20 billion of leverage and financial commitments, we believe this restructuring is necessary for the long-term success and value creation of the business.”

The backstop agreement showed the confidence of Chesapeake’s lenders in its operating platform and future and thanked the company’s ‘dedicated’ employees for their efforts, he said. 

In the first quarter of 2020, Chesapeake reported net losses of more than $8 billion, and warned then that it may struggle to continue.

Elsewhere, analysts have warned that other debt-laden US oil and gas companies may follow suit as the effects of the ongoing pandemic and the collapsing oil price take their toll. 

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2nd July 2020