Chesapeake’s share price has dropped more than 93% since January, from $172 to $11.85 as of close on Friday.
Earlier this month, Chesapeake skipped interest payments of $13.5 million, according to filings with the US Securities and Exchange Commission. The company had a 30-day grace period before it would be considered in default.
“In the current commodity price environment, Chesapeake is burning cash at the same time production is declining, which is not sustainable,” said Spencer Cutter, credit analyst at Bloomberg Intelligence.
As part of the process, Chesapeake said it has secured $925 million in financing under a revolving credit facility. It also reached an agreement with lenders to eliminate around $7 billion in debt, and locked in a future commitment of $600 million in new equity.
“We are fundamentally resetting Chesapeake’s capital structure and business to address our legacy financial weaknesses and capitalize on our substantial operational strengths,” Chesapeake CEO Doug Lawler said in a statement. He added that the company is positioning itself to “capitalize on our diverse operating platform and proven track record of improving capital and operating efficiencies and technical excellence.”
Debt problems exacerbated by crisis
Chesapeake, founded in 1989 with an initial investment of $50,000, and has long been known as a major natural gas producer.
“For the US shale sector, there has been no bigger disruptor than Chesapeake,” Alex Beeker, principal analyst at Wood Mackenzie, said in a statement Sunday.
Continued cheap gas prices persuaded the company to make a big bet on oil, an expansion marked by a $4 billion deal in October 2018 to buy Texas driller WildHorse Resource Development that proved to be poorly timed.
Bankruptcy rumors have swirled around Chesapeake for years as low oil and gas prices made it difficult for the company to repay its pile of debt.
In May, Chesapeake warned it may not be able to stay in business because it had “no access to capital” and “uncertain economic conditions” were impacting its business partners.
30% of US shale is technically insolvent
Already this year, 18 oil-and-gas companies have defaulted on their debt, compared to 20 for all of last year, according to a S&P Global Ratings tally from earlier this month.
Chesapeake is just the latest oil company to file for bankruptcy protection.
Analysts have warned that dozens more US oil and gas companies may succumb as well.