Chesapeake Energy, a Fracking Pioneer, Is Reeling

Source: By Clifford Krauss, New York Times • Posted: Wednesday, June 10, 2020

The company, which has said it could file for bankruptcy protection, helped turn the U.S. into a gas exporter but became known for an illegal scheme to suppress the price of oil and gas leases.

Chesapeake Energy built a luxurious campus in Oklahoma City before it ran into financial and legal trouble under its former chief executive, Aubrey McClendon.
Steve Sisney/Reuters

HOUSTON — Shares of Chesapeake Energy, a pioneer in extracting natural gas from shale rock that came to be known for its excesses, including a scheme to suppress the price of oil and gas leases, went on a wild ride on Tuesday amid reports that it was preparing a bankruptcy filing.

Trading was halted for more than three hours in the morning. After buying and selling resumed, the trading was quickly interrupted again by circuit breakers. The company’s shares closed just below $24 for a loss of about 66 percent for the day.

Chesapeake’s successes at using hydraulic fracturing to produce gas helped convert the United States from a natural gas importer into a major global exporter. But the company overextended itself by amassing a large debt and has been struggling to survive over the last decade. It is the latest of more than a dozen heavily indebted oil and gas businesses to seek bankruptcy protection since the coronavirus pandemic took hold and Saudi Arabia and Russia flooded the global market with oil this spring.

The company hired advisers to explore bankruptcy in recent months after reporting a loss of $8.3 billion in the first quarter, and said it had just $82 million in cash at the end of March. Chesapeake was forced to write down the value of oil and gas assets by roughly $8.5 billion this year. With $9.5 billion in debts at the end of last year, it has bond payments of $192 millions that are due in August.

Under its swashbuckling former chief executive Aubrey McClendon, the company drilled across Texas, Oklahoma, Ohio, Wyoming and Louisiana, borrowing billions of dollars along the way. Mr. McClendon was audacious as he aggressively outbid competitors on land leases and explored widely in the early 2000s, although he also drilled many wells that disappointed investors. By 2011, he and others who followed in his footsteps produced a glut of natural gas that sent Chesapeake and other companies to the brink of collapse.

To find a use for all that natural gas, Mr. McClendon went on a campaign to promote compressed natural gas vehicles, but the effort went nowhere.

Before his ouster in 2013, Mr. McClendon built a luxurious campus for the company in Oklahoma City, and acquired trophy assets like the Oklahoma City Thunder basketball team, interests in a French winery and a $12 million antique map collection. The basketball team still plays in Chesapeake Energy Arena, which was a symbol of Oklahoma City’s arrival as a gas hub.

But Mr. McClendon was also known to cut corners, which got him and his company in trouble. He was charged in 2016 with conspiring to suppress prices for oil and natural gas leases. The indictment said he had orchestrated a conspiracy in which two oil and gas companies colluded not to bid against each other for several leases in northwestern Oklahoma from late 2007 to early 2012.

A day after he was indicted, Mr. McClendon, 56, died in a crash in Oklahoma City after his car hit a bridge at high speed.

The company’s current chief executive, Robert D. Lawler, tried to revive Chesapeake by producing more oil and selling gas assets. But the boom in shale drilling in recent years also produced a glut in crude oil, sending prices lower. The economic slowdown after the spread of the coronavirus was the latest blow.

Mr. Lawler has said Chesapeake, which employs 1,900 people, intended to continue operating the business if it filed for bankruptcy.

“Chesapeake was a real icon of what the oil business can do,” said Darlene S. Wallace, president of Columbus Oil, an Oklahoma company. “It’s sad that it has come to this, but it is also a big reminder that no one is too big to fail.”

There have been rumors of a bankruptcy for months, but over the last few days, trading in the company’s stock has been tumultuous. On Monday, Chesapeake shares nearly tripled in value on heavy volume amid 22 trading halts before Bloomberg News reported that the company was planning to seek bankruptcy protection. Shares of the company had climbed roughly 300 percent since a 1-for-200 reverse stock split in mid-April until Tuesday’s sharp decline.

But the company’s bonds have been trading below 10 percent of their face value, suggesting that debt investors had little confidence in Chesapeake’s ability to repay the money it owes.

Nineteen American oil and gas producers have already filed for bankruptcy this year, including Ultra Petroleum and Whiting Petroleum. That compares with 42 for all of North America in 2019, according to the Haynes and Boone Oil Patch Bankruptcy Monitor. A total of 227 companies have filed for bankruptcy in the five years that ended May 31, involving more than $134 billion in aggregate debt.

“It is reasonable to expect that a substantial number of producers will continue to seek protection from creditors in bankruptcy even if oil prices recover over the next few months,” Haynes and Boone said in a report published this month.

Peter Eavis contributed reporting from New York.