«Chesapeake Energy» oil-extracting company is on the verge of bankruptcy

The “Chesapeake Energy” company, one of the leaders in the American market of natural gas production, which used to be at the forefront of the shale oil revolution pioneers, today requested the protection from the creditors. It means that the company might be declared bankrupt in the nearest future. The reason for such a development of events was exorbitant credit obligations and the unfavorable situation on the world oil and gas markets.

Many Americans considered the company, which was founded in 1989, as an exemplary of entrepreneurship. At the time of its creation by Aubrey McClendon and Tom Ward, the authorized capital of the company was only $ 50 thousand. However, the stake on modern drilling technologies has allowed the entrepreneurs to quickly go on an IPO and become one of the leading US companies in the new millennium.

In 2005, the company was in second place in terms of the natural gas production after the “ExxonMobil” company.

In recent years, the company was conducting operations in five American states (Pennsylvania, Louisiana, Texas, etc.)

Initially, all the production was actually carried out at the location of the main field at the border of two states (Texas and Oklahoma). Gradually, the company geographically expanded the boundaries of its activities. By the summer of 2008, the capitalization reached $ 35.6 billion, but then the price of shares began to sag, and the co-founder of the company McClendon was removed from the post of CEO by a decision of the shareholders in 2013. In 2016, he died, having crashed into a bridge fence. A number of media claimed that it was a suicide, caused by charges of commercial conspiracy to win a tender for the oil exploitation. 

By the end of the last year, the lending commitments reached $ 8.9 billion.

The company still had a long-term plan, intending to pay off part of its debts by means of the sale of the assets. The analysts say that it was a risky but possible strategy. However, after the oil prices fell to a minimum and the coronavirus pandemic literally torn the US economy to pieces, simultaneously kneeling the entire global economy, it became impossible to implement the conceived strategy of “Chesapeake Energy”.

As a result, the company began to take on huge debt obligations, having no guarantees to repay them in the nearest future. It became known that the management decided to skip the deadlines for mandatory payments in August ($ 192 million). The company has to pay a decent amount ($ 136 million) by July 1 as well. 

Taking into account the fact that “Chesapeake Energy” is not expected to receive support from the state in connection with the coronavirus, Moody's agency downgraded the rating of the company to the “junk” one.

In the first four months of 2020, the shares of “Chesapeake Energy” depreciated fourfold. For the moment, the company is negotiating with partners, intending to get a loan that will allow it to go through the bankruptcy procedure as painlessly as possible. The experts believe that the amount of borrowings can reach up to $ 1 billion. Such methods of financing a “debtor in possession” are a very common practice of the American companies that are filing for bankruptcy. The only thing is that it will be extremely difficult to get a loan in the current circumstances.