Chesapeake’s Demise Marks End of Shale Model That Changed the World

It will go down as the wildest of the shale wildcatters, the overreaching pioneer of fracking techniques that minted vast fortunes and, now, have left behind ruin.

At long last, financial reality has caught up with Chesapeake Energy Corp., avatar of the boom and subsequent bust of North American shale.

Chesapeake’s spiral toward oblivion accelerated this week with executives said to be preparing for a potential bankruptcy filing, signaling the imminent end of Chief Executive Officer Doug Lawler’s 7-year campaign to turn around the troubled gas explorer. For a company that’s been skirting disaster for most of the past decade, the Covid-19-driven collapse in world energy prices merely added one more exclamation point to a tale of risk, hubris and debt.

Chesapeake may be shale’s biggest corporate casualty, but it is hardly the first -- and won’t be the last. Its self-inflicted wounds have sapped confidence across the entire industry, leaving many smaller operators teetering on the edge of catastrophe.

As the remnants of shale’s turn-of-the-century heyday turn to dust, it’s unclear who -- if anyone -- will step into the void. Supermajors like Exxon Mobil Corp. and Chevron Corp. already have written off their own gas-heavy assets, and are instead focusing on oil-rich shale fields. But any shift in the global supply-and-demand balance for gas would prompt the most sophisticated giants to reassess the value of acquiring and drilling mothballed gas projects.

Extreme Pressure

Almost three dozen North American explorers, frackers and pipeline operators have fled to bankruptcy courts since the start of this year, buckling under $25.2 billion in cumulative debts, according to law firm Haynes and Boone LLP. Chesapeake’s indebtedness would swell that encumbrance by almost 40%.

And even with crude prices recovering from the unprecedented April collapse into negative territory, energy-sector bankruptcies are expected to grow in coming months because many shale companies are in too far over their heads. “Extreme financial pressure is being felt at all levels of the energy industry,” Haynes and Boone said in a report.

The template for the shale model that’s now unraveling for many companies was established by Chesapeake and its late co-founder Aubrey McClendon.