Chesapeake Energy eyes bankruptcy after $ 8 billion first quarter loss

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Chesapeake Energy Corp. on Monday announced in a filing she filed with regulators that bankruptcy was on the table after recording a net loss of about $ 8.3 billion – about $ 853 per share – for the first quarter of 2020.

Days earlier, the Oklahoma City energy company informed regulators and investors that its board had cut some bonuses for senior executives, while creating a quarterly incentive program for its core employees. The company has approximately 1,900 employees.

The company, hammered by low commodity prices caused by a global price war and depressed demand caused by COVID-19, said in its filing with the United States Securities and Exchange Commission that it must take a non-monetary depreciation charge on its assets of approximately $ 8.5 billion between January and March.

Chesapeake’s stock price has fallen significantly over the past year.

“If the currently depressed prices persist, combined with the expected reductions in the leverage ratio covenant and an expected significant reduction in our borrowing base in our expected determination, then our liquidity and ability to meet our financial covenants at the over the next 12 months be adversely affected, ”the company said in its regulatory filing.

The company said it plans to violate these financial covenants, which require it to limit its debt ratio to 4: 1 between debt and consolidated earnings before interest, taxes, depreciation, amortization and exploration, by October.

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Beyond using bankruptcy to restructure its debt, other options the company is considering include going private.

“However, there can be no assurance that the company will be able to successfully restructure its debt, improve its financial position or enter into strategic transactions.”

“Due to these uncertainties and the likelihood of a restructuring or reorganization, management has concluded that there is substantial doubt as to the ability of the business to continue as a going concern.”

Salary changes adopted

Chesapeake Energy’s May 8 filing with the SEC said it had cut target variable compensation by 34% for CEO Doug Lawler and CFO Domenic J. Dell’Osso; 33% to Frank J. Patterson, its executive vice president for exploration and production; and 28% for James R. Webb, its general counsel.

The directors also agreed to waive other bonuses due or future.

The file indicates that it estimates that the variable target compensation payments set for 2019, after revisions, amount to $ 25 million for senior executives of the company and other executives of the company (21 people in total. ). Half of those payments will only be made if those employees stay on board the entire year, he said.

The record indicated that the quarterly bonus plan for core employees is aimed at making them work hard.

He did not detail the amount of payment per employee, nor what that total cost would be. However, he said the new program is “essential to keep employees engaged and focused on the tasks necessary to achieve short and long term business goals.”

The company’s first-quarter 2020 net loss of about $ 8.3 billion is higher than the revised $ 7.8 billion value of its assets after the write-down, the company’s file showed on Monday.

Chesapeake’s total revenue for the first quarter of 2020 was around $ 2.5 billion, while its total operating expenses, less depreciation, were around $ 2.25 billion.

While Chesapeake also noted that he continued to fight various pending lawsuits against him in Texas, Oklahoma, Ohio and Pennsylvania regarding the collection of calculations, royalty payments, lease negotiations and earthquakes. de terre, the dossier said he did not expect the cases to impact his future, yet.

The biggest concerns are the continued market swings caused by reduced global demand for oil and natural gas, and the potential that these conditions could cause the company to default on its debt obligations.

At the same time, an email from Lawler to employees reassures them. Chesapeake continues to operate.

“We are working with advisors to better position the company for the future, including exploring strategic alternatives to deal with our capital structure,” he wrote. “Our goal in this process is to finally align our capital structure with the quality of our people, assets and operations.

Lawler acknowledged that recent media reports attributed the company to the possibility of going bankrupt.

“It is important that you understand that if this were to happen, we would continue to operate our business as usual, and you would continue to be paid and receive benefits,” he wrote.

“Our people are our most important asset, which is why we have improved our 2020 bonus program to ensure that you are paid correctly and provided with incentives during this difficult time. Your hard work, flexibility, continued diligence and focus on safety in an environment of unprecedented commodity pricing and the COVID-19 pandemic has been exceptional, and I am proud to work alongside you. “


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