U.S. shale producer Chesapeake Energy Corp on Tuesday exited Chapter 11 bankruptcy with business plan that nods to its founders’ emphasis on natural gas after a recent push into crude oil.
Once the second-largest U.S. natural gas producer, Chesapeake was felled by a long slide in gas prices and heavy debts from overspending on deals. Two years ago it paid $4 billion in a bet on shale oil firm WildHorse Resource Development. But oil prices fell after the deal closed.
The company plans to focus 85% of this year’s spending on gas fields in the U.S. Northeast and Louisiana, and will let its oil output decline, Chief Executive Doug Lawler said in an interview.
It aims to spend between $700 million and $750 million per year on new projects that could generate $400 million in annual free cash flow, he said.
Chesapeake filed for court protection last June and won approval last month for a plan that shed about $7.7 billion in debt.
It was unable to invest enough in operations to turn a profit while simultaneously paying down $9 billion in debt. That “led us to make decisions that weren’t always the best,” said Lawler, who took over the firm in 2013.
“We were never able to invest in our assets to the benefit of our shareholders,” he said.
Chesapeake last week dismissed 220 workers, or 15% of its workforce, and said raised $1 billion in new debt to complete its bankruptcy exit.
Two of Chesapeake’s oilfields in South Texas and in the Powder River Basin in Wyoming have kept their costly gas transportation agreements despite the bankruptcy. That makes future oil investments most likely instead in its Brazos Valley field in Central Texas it bought from WildHorse, which has cheaper transportation costs, said John Thieroff, vice president at debt rating firm Moody’s Investors Service.
The company will have around $100 million in interest payments annually, down from $650 million in 2019, Thieroff said.
Chesapeake was founded in 1989 by wildcatters Aubrey McClendon and Tom Ward. As CEO McClendon snapped up drilling land across the United States in a belief that gas prices would stay high. However, McClendon stepped down in 2013, as investigations swirled into possible antitrust violations, and later died in a car accident.