Chesapeake Energy Emerges from Bankruptcy

One-time shale champion eliminates $1 billion in annual cash costs and plans to focus 2021 activity on natural gas assets.

Chesapeake's New Day

Chesapeake Energy, the once high-flying player in the US shale revolution, has completed its restructuring and emerged from Chapter 11 bankruptcy, equitizing about $7.8 billion of debt under a court-approved plan. As of February 9, 2021, Chesapeake's principal amount of debt outstanding was $1.27 billion, compared to roughly $9.1 billion as of June 30, 2020.

“We have fundamentally reset our business, and with an improved capital and cost structure, disciplined approach to capital reinvestment, diverse asset base and talented employees, we are poised to deliver sustainable free cash flow for years to come.,” said Chesapeake president and chief executive Doug Lawler.

Upon emergence, the Oklahoma City-based company entered into a credit facility with a $2.5 billion borrowing base, with amounts maturing in 2024 and 2025. Chesapeake had approximately $50 million borrowed on the facility at February 9, 2021, as well as $51 million reserved for undrawn letters of credit outstanding. On February 5, 2021, Chesapeake issued $1 billion of new senior unsecured notes which replaced the committed exit first lien last out term loan the company had negotiated in connection with filing for Chapter 11.

The producer expects to generate cumulative free cash flow of more than $2 billion over the next five years. It also expects capital reinvestment of between 60% to 70% of cash flow.

A video titled Chesapeake’s New Day on the company’s website explains: “Today is a new day. We have fundamentally reset our company and our future is finally free of the legacy constraints which have long impacted and limited our performance… We will grow free cashflow. We will maintain the strength of our balance sheet… We recognize and believe that delivering profitability alone is not enough. The world and the market require more.”

In 2019, the operator ranked as the 6th-largest US onshore producer of natural gas and 11th-largest in terms of oil. Chesapeake’s average daily production for the 2020 fourth quarter was approximately 435,000 BOE, and it projects its full year 2021 average daily production to be approximately 427,000 BOE. The company's planned capital expenditures for 2021 includes operating an average of six rigs and two stimulation crews with an estimated spend of approximately $700 million.

Cheaspeake’s holdings consist of operations in the Marcellus shale play in Pennsylvania, the Powder River Basin of Wyoming, and the Haynesville shale in northern Louisiana. The company expanded its footprint in Texas’ Austin Chalk and Eagle Ford shale plays with the 2019 acquisition of WildHorse Resource Development Corporation.

In accordance with the reorganization plan, a new Board of Directors was appointed and includes Chairman Michael Wichterich, chief executive of private oil explorer Three Rivers Operating Company; Timothy S. Duncan, president and chief executive of Talos Energy; Sarah Emerson, president of research firm Energy Security Analysis; Doug Lawler and others.

Chesapeake also has committed to achieving net-zero GHG direct emissions by 2035, eliminating routine flaring on all wells completed on a go-forward basis, and meaningfully reducing methane and GHG intensity by 2025. Additionally, the Board is establishing the company’s first Environmental and Social Governance Committee dedicated to ESG oversight and excellence.