The years-long efforts of Chesapeake Energy Corp. to clean up its balance sheet have been unable to weather commodity price shocks and billions of dollars in debt, chief financial officer Domenic Dell’Osso said in bankruptcy court.
About eight months after Chesapeake warned it risked breaching its credit agreements, the shale gas producer filed for Chapter 11 bankruptcy on June 28 after exhausting a long list of vehicles from debt and equity to reduce debt and improve profitability.
According to the day one statement Dell’Osso filed in the Chapter 11 case, Chesapeake entered “comprehensive restructuring negotiations” with major creditors in late March, and in May it weighed two proposals as the COVID-19 pandemic was destroying demand. for hydrocarbons. Even though the company had abandoned the culture of “growth at all costs” when Doug Lawler replaced founder Aubrey McClendon as CEO in 2013, Chesapeake “needs a full deleveraging operation to position the company for profitable way in the current commodity price environment”. Dell’Osso said. (United States Bankruptcy Court for the Southern District of Texas, Division of Houston, File 20-33233 (DRJ))
Chesapeake will reorganize under the restructuring support agreement to eliminate approximately $7 billion in debt with all of its lenders under its revolving credit facility and with holders of approximately 87% of the bonds under its term loan agreement, approximately 60% of its second lien secured lien notes due 2025 and approximately 27% of its senior unsecured notes.
The company has secured a new $925 million debtor-in-possession funding facility for certain of its existing revolving credit lenders. Chesapeake and certain lenders under its revolving credit facility have also entered into terms on $2.5 billion of exit financing, which consists of a $1.75 billion revolving credit facility and a $750 million term loan. The driller has $1.93 billion outstanding as part of the pre-petition revolver, including $74 million in letters of credit, Dell’Osso said.
“The restructuring support agreement delivers significant value to all stakeholders,” Dell’Osso said. “This remarkable level of support and investment, achieved in the face of a global pandemic and an unprecedented downturn in the oil and gas industry, will position debtors for long-term success.”
However, the $750 million senior term loan facility is dependent on Chesapeake’s ability to successfully cancel contracts with intermediary suppliers. The driller has already sought permission to do so from the U.S. Bankruptcy Court for the Southern District of Texas, Division of Houston. Chesapeake specifically asked the court to void natural gas transportation contracts with Energy Transfer LP’s ETC Tiger Pipeline LLC and Loews Corp’s Gulf South Pipeline Co. LP. to release a total of $311 million in cash. On 23% of ETC Tiger’s contracted gas transportation capacity is reserved for Chesapeake. Less than 1% of Gulf South’s capacity is owned by the producer.
In response to a petition from ETC Tiger, the Federal Energy Regulatory Commission issued a declaratory order on June 22 stating that while Chesapeake may elect to reject a contract in bankruptcy court without the commission’s approval, this rejection of bankrupt contracts does not affect regulatory obligations under FERC. jurisdiction, in accordance with the Natural Gas Act. Stagecoach Pipeline & Storage Co. LLC, a joint venture between Crestwood Equity Partners LP and Consolidated Edison Inc., also requested “expedited action so that the commission’s authority is clarified before or as soon as possible after any bankruptcy proceedings are filed.” to protect 15% of its contractual capacity.
Chesapeake moved to counter pipeline positions. He told the court on June 28 that the 5th United States Circuit Court of Appeals “held that the bankruptcy code does not limit the power of the bankruptcy court to dismiss contracts subject to FERC regulation.” .
In the case of Chesapeake in particular, firm transportation agreements are “an unnecessary drain on its resources relative to any (theoretical) future benefit,” the day-one motion said.