Major US Shale Producer Chesapeake Files for Chapter 11

Chesapeake Energy's bankruptcy delivers hit to reeling pipeline service firms

The DIP financing will provide Chesapeake the capital necessary to fund its operations during the Court-supervised Chapter 11 reorganization proceedings. The expansion was entirely fueled by debt, which crippled the company when its own success as a producer - and the success of its later rivals - drove the price of natural gas down almost 90 percent.

Oklahoma-based Chesapeake Energy filed for Chapter 11 on June 28, becoming the largest U.S. shale oil and gas producer to seek bankruptcy protection in recent years.

Founded in 1989 with an initial $50,000 investment, Chesapeake focused on drilling in underdeveloped areas of Oklahoma and Texas.

If its proposal ultimately is approved, Chesapeake would emerge from the process with a $2.5 billion line of credit, supplied through a $750 million term loan and $1.75 billion of new credit. The RSA is also backed by creditors, including those holding 87% of its term loan, 60% of its senior secured second lien notes due 2025 and around 27% of senior unsecured notes. Chesapeake brought its current chief executive, Doug Lawler, onboard in 2013 when the company was struggling to pull out of roughly £10.55 billion in debt.

"With the oil and natural gas prices the way they are right now, it would be nearly impossible for them to dig their way out of that situation", Agee said. The company cut eye-popping checks to Fort Worth businesses and residents as inducements to drill on their land in the Barnett Shale of North Texas, America's first shale field to hit the big time.

USA natural gas slumped after the 2008 financial crisis as the frackers overwhelmed demand, and prices still have not revisited their previous highs.

McClendon was forced out in 2013; he died three years later, the day after he was indicted on a charge of price-fixing, when he drove his Chevrolet Tahoe into a concrete abutment.

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When oil prices briefly turned negative in April after a collapse in energy prices, the company was issued a rare "strong sell" rating and slapped with a $US0 price target by CFRA Research.

The energy giant's share price has dropped more than 93 percent since January, from $172 to $11.85 as of close on Friday. Thanks to Lawler's strategy that included asset sales and aggressive cost cuts, the USA natural gas producer was able to minimise its debt pile in recent years. The company was in talks a year ago with Jerry Jones, the billionaire Dallas Cowboys owner, about a $1 billion sale of shale assets, but no deal resulted. As per the court filing, its assets and liabilites are now valued at £8.11 billion, and the company is aiming at slashing its debt by £5.68 billion.

Despite Chespeake's problems, Lawler past year remained the highest-paid chief executive in Oklahoma with $15.4m in compensation, according to a ranking compiled by Associated Press and Equilar.

The oil-and-gas group, which was once worth $US35 billion by market capitalisation, pioneered the entry into shale production a decade ago, setting the scene for the USA to become one of the leaders in the controversial field.

Since January, Chesapeake shares have fallen from highs of $180 per share, to just $11.85 today.

(This story includes reporting from Bloomberg).

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