Chesapeake Energy, the shale gas drilling pioneer that helped to turn the United States into a global energy powerhouse, has filed for bankruptcy protection.
The Oklahoma City-based company said on Sunday that it had been forced to enter chapter 11 protection because its debts of $9bn were unmanageable.
It has entered a plan with lenders to cut $7bn of its debt and said it will continue to operate as usual during the bankruptcy process.
The oil and gas company was a leader in the fracking boom, using unconventional techniques to extract oil and gas from the ground, a method that has come under scrutiny because of its environmental impact.
Other wildcatters followed in Chesapeake’s path, racking up huge debts to find oil and gas in fields spanning New Mexico, Texas, the Dakotas and Pennsylvania.
But those companies are now under pressure to service those debts. More than 200 oil producers have filed for bankruptcy protection in the past five years, a trend that was expected to continue as the Covid-19 pandemic saps demand for energy and depresses prices further.
Founded in 1989 by Aubrey McClendon and Tom Ward with an initial $50,000 investment, Chesapeake focused on drilling in underdeveloped areas of Oklahoma and Texas. It largely abandoned traditional vertical well drilling, employing instead lateral drilling techniques to free natural gas from unconventional shale formations.
It became a colossus in the energy markets, eventually reaching a market valuation of more than $37bn. Then, the first in a series of financial shocks hit Chesapeake as the fallout from the global financial crisis of 2008 sent energy prices into the basement.
The company was valued at around $115m at the close of trading on Friday.
With the colourful McClendon as chief executive, Chesapeake grew with lightning speed and was known for its aggressiveness in acquiring oil and gas drilling rights. McClendon pushed the company to acquire enormous tracks of land in several states, taking on mounting debt along the way. Chesapeake in some ways became a victim of its own success as other companies followed its lead and US energy production soared, driving down prices.
As Chesapeake was expanding at breakneck speed, natural gas prices were near $20 per million British thermal units, the benchmark for natural gas trading. But frackers like Chesapeake flooded the market with cheap natural gas, sending prices to well under $2.
But McClendon was forced to resign in 2013 over allegations of conspiring to rig bidding for oil and gas contracts over several years, and amid investor concerns over his heavy spending in what was already a hugely indebted sector. McClendon died in a car crash in 2016 hours after charges were lodged by the US justice department over the alleged market malpractice.
Chesapeake has paid millions of dollars since to settle charges of bid rigging.
Robert Lawler became chief executive after McClendon’s death and began selling off assets to get Chesapeake’s debt under control. But that debt grew more threatening within two years as the fracking boom turned to a bust in 2015. Chesapeake reported a quarterly loss of $4bn that year and the first wave of layoffs began with 750 jobs.
Despite Chespeake’s problems, Lawler last year remained the highest-paid chief executive in Oklahoma with $15.4m in compensation, according to a ranking compiled by Associated Press and Equilar.
Chesapeake lost $8.3bn in the first quarter of this year, and it listed $8.62bn in net debt. The company said in a regulatory filing in May that management has concluded that there is substantial doubt about the companys ability to continue as a going concern.
Over more than two decades, McClendon built Chesapeake into one of the world’s biggest natural gas producers , and in the process, he helped turn the US into a major exporter of fossil fuels after years of dependence on overseas suppliers.