Covid-19 health crisis accelerated the fall of Chesapeake Energy, the US shale gas pioneer and energy giant, which was one of the cornerstones of the US strategy to reduce dependence on the Gulf’s oil.
It’s a section of American economic history in the early 2000s that has just collapsed. The bankruptcy of Chesapeake Energy, announced on Sunday, June 28, marks the company’s case that started the shale gas rush in the United States and embodied the American energy revolution for more than a decade. The company did not survive the Covid-19 pandemic, which resulted in a historic fall in fossil fuel prices.
Chesapeake Energy, which was worth more than $ 38 billion in the stock market at its peak in 2008, application for protection under US bankruptcy law with only about $ 80 million in their coffins. Far from what it would take to cover losses in the first quarter (more than $ 8 billion) and meet a mountain of debt (nearly $ 9.5 billion).
False broadcasts of success story
The corona virus has turned the last page in the turbulent history of a long-standing company in the environmental organizations’ cross chairs. For the latter, Chesapeake Energy embodied the great Satan of hydraulic fracturing, this technique of pumping gas and oil into the slate rock and which is suspected to have caused irreparable damage to North American basements.
But others saw Chesapeake Energy as the centerpiece of the American energy renaissance. “Without this company, there would have been no shale gas revolution and no energy independence from the United States,” said a named US industrial restructuring specialist, contacted by the Financial Times.
The history of Chesapeake Energy has false broadcasts of success story. The former energy giant was founded in 1989 in Oklahoma City by two 29-year-old friends who thought that today’s talk of top oil was unnecessarily alarmist. With an initial grant of only $ 50,000, they began to buy and lease land that the major oil and gas groups did not want, hoping for a day to extract what was not yet called gas or oil. slate.
They continued on their way and spent without expecting everything they could borrow to gain drilling rights throughout the US territory. Twenty years after its creation, the Chesapeake Empire covered over 60,000 square miles along a corridor from the Appalachian Mountain region, northeast of the United States, to southern Texas.
Highest paid manager in the United States
It was a good time for the group, which was then considered the second largest producer of natural gas in the country. The price of valuable hydrocarbons then rose and Aubrey McClendon, the charismatic CEO and co-founder of Chesapeake, became the highest paid big boss in the country in 2008 with a check of over $ 100 million.
It was also the size of Oklahoma City, whose economic renaissance in the early 2000s owed much to Chesapeake Energy and its CEO’s generosity. Among his most significant investments, Aubrey McClendon built a giant basketball stadium there, participated in the 2006 acquisition of the NBA team Seattle Supersonics to make it the thunderstorm in Oklahoma City, and built an impressive shopping center in the stated goal of offering stores to youth in the region tempted to Seek their fortune elsewhere.
Asked about how he was spending in 2005, Aubrey McClendon replied that “asking what to do with the money is like asking a student from a university fraternity what to do with beer”. In addition, the effects of alcohol fade for the student, while the debts procured by Chesapeake Energy remain.
After the financial crisis in 2008, the burden of repayments became a major problem for the Group, which became increasingly difficult to find new lenders. Especially since Chesapeake Energy was no longer the only one in the shale gas market. As the supply became more and more extensive, prices fell, depriving the company of costly cash inflows.
But in early 2010, Chesapeake Energy was considered “too big to fail” (that is, a bankruptcy would have had severe financial consequences) and, above all, too important for the US strategy to become less dependent on black gold from the Gulf. The banks thus fled to the group to rescue, but its CEO was pressured to leave in 2013.
To reduce the group’s debt, Robert Douglas Lawler, the new head of Chesapeake Energy, decided upon selling certain gas assets to focus on oil, where margins are higher. But “the sense of timing couldn’t have been worse”, points out the Wall Street Journal.
From 2014, Saudi Arabia began a price war to maintain its market share against the United States, where oil is more expensive to extract. Robert Douglas Lawler’s investment did not pay off, although he managed to reduce Chesapeake Energy’s debt by several billion dollars.
And when the Covid-19 pandemic occurred, embodying the global economy and reducing demand for fossil fuels, the former king of shale gas no longer had the financial strength to survive this new shock.
If Chesapeake Energy is the most symbolic and sounding bankruptcy in the US energy sector in the health crisis so far, it is not the only one. Since the beginning of the year, about 20 groups working on the utilization of shale gas and oil have applied for bankruptcy and according to a recent analysis of the financial company Deloitte, more than one in three companies in the sector may not survive this crisis.