Debt-stricken Chesapeake Energy Corp said on Monday it was considering a bankruptcy filing, among other alternatives, as the shale driller struggled with an unprecedented rout in oil and gas prices caused by the COVID-19 pandemic.
Reuters reported last month that the company was in talks to line up bankruptcy financing and it was discussing a possible loan to aid operations through the bankruptcy.
Chesapeake faces significant payments due this year on portions of its nearly $9 billion debt pile. Debt maturities and interest expenses combined total more than $1 billion, according to company filings. About $250 million of its senior notes are due this year.
It will not be able to comply with its financial covenants starting in the fourth quarter, the company said in a filing www.sec.gov/ix?doc=/Archives/edgar/data/895126/000089512620000115/chk-2020033110q.htm, adding that it has no access to capital markets.
Chesapeake also said it believed this quarter’s review of the value its untapped oil and gas reserves is likely to decline due to its distressed financial position, reducing its ability to borrow against those assets.
Last week, the company said it would pay $25 million in incentives to top executives amid the downturn. Industry peers Whiting Petroleum Corp and Diamond Offshore Drilling Inc also gave out cash awards for senior management in the days before filing for Chapter 11 last month.
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A bankruptcy filing would cap a long reversal of fortunes for Chesapeake, a company that became part of the S&P 500 Index within 20 years of it being founded and helped revolutionize the energy industry.
The company was trying to pivot from gas to a greater emphasis on oil production when a Saudi-Russian energy price war earlier this year upended its plans and the wider crude market. It was dealt another blow by the coronavirus outbreak, which caused energy demand to dwindle by shutting large swaths of the global economy.
U.S. oil prices have fallen around 60% so far this year and in April turned negative for the first time in history.
Chesapeake, which had about 2,300 employees as of the end of last year, has also been laying off, according to Monday’s filing. In the last quarter, it terminated contracts of majority of the employees that joined when it took over Texas oil producer WildHorse Resource in a $4 billion deal in 2018.
The company’s shares fell over 2% in early trade to $14.40.
