June 29 (UPI) -- The Chesapeake Energy Corporation, which made its name drilling shale for natural gas in the United States, announced it has filed for bankruptcy protection.
The Oklahoma-based company said in a statement Sunday that it has filed for Chapter 11 protection in the southern district of Texas to "facilitate a comprehensive balance sheet restructuring."
The process will be used to "strengthen" its balance sheet and to achieve a "more sustainable capital structure" by restructuring its legacy contractual obligations, it said.
The company has been dealing with mounting debt due to low oil and natural gas prices but the environment has worsened even further recently amid the coronavirus pandemic, it said.
In May, the company released its quarterly report for the three months ending March 31 and said it asked advisors to evaluate how to go forward, including the possibility of filing for bankruptcy, warning that "there can be no assurances that the company will be able to successfully restructure its indebtedness, improve its financial position or complete any strategic transactions."
In the statement Sunday, Chesapeake Energy said its reorganization plan will eliminate $7 billion in debt.
It also secured $925 million in debtor-in-possession financing from lenders to float operations during the reorganization process and it has the backstop support of $600 million while agreeing with lenders to a $2.5 billion exit financing plan.
"We are fundamentally resetting Chesapeake's capital structure and business to address our legacy financial weaknesses and capitalize on our substantial operational strengths," said Doug Lawler, Chesapeake's president and CEO. "By eliminating approximately $7 billion of debt and addressing the legacy contractual obligations that have hindered our performance, we are positioning Chesapeake to capitalize on our diverse operating platform and proven track record of improving capital and operating efficiencies and technical excellence."
Chesapeake Energy was founded in 1989 and became known for its horizontal drilling into shale for natural gas, which vaulted it to become a name in the U.S. gas industry. However, the company incurred much debt over the past decade to fund expansion amid a time of slumping gas prices.
In the May statement, the company said the historically volatile prices of oil and natural gas were worsened by the coronavirus pandemic and the Organization of Petroleum Exporting Countries' decision in March to further reduce prices while increasing production.
"These industry conditions, coupled with those resulting from the COVID-19 pandemic, are expected to lead to significant global economic contraction generally and in our industry in particular," it said.
The bankruptcy follows the publication of a report last week by multinational accounting service Deloitte forecasting a "great compression" in the U.S. shale industry, stating the industry is ripe for consolidation and contraction with many companies likely to go bankrupt.