By Eoin Higgins
Climate advocates on Sunday pointed to fracking giant Chesapeake Energy filing for bankruptcy as further evidence that the collapse of the fossil fuel industry is being accelerated by the coronavirus pandemic and called on the government to stop supporting businesses on the ground.
“Fracting giant Chesapeake Energy just filed for bankruptcy on its massive $1 billion debt,” tweeted Friends of the Earth. “Meanwhile, the Trump administration continues to try to bail out this garbage burning industry with our tax dollars, despite the obvious risks.”
The company, which at its peak in 2008 was valued to billion, had a market capitalization of just 5 million on Friday.
“The Debt Bubble Prevented Chesapeake from Maneuvering When the Pandemic Ruined Energy Demand,” David Dayen wrote of the bankruptcy of The American Perspective.
Reports place most of the blame for the bankruptcy on former CEO Aubrey McClendon, who bought up leases and rights across the country as the fracking industry boomed.
As Forbes reporteda number of bad business decisions and moves left Chesapeake in bad shape even before gas prices crashed due to slowing demand due to the pandemic.
As natural gas prices collapsed in the late 2000s, McClendon then turned to selling the assets of his own company or parts of direct interests in large gambling areas as a means of continuing to fund and repay that debt. He sold shares of the company’s working interests in the Barnett, Eagle Ford, Marcellus and Haynesville to various other players, such as BP and CNOOC, but each sale also meant less and less cash flow going into the business itself. Many in the business at that time joked that it was a kind of pyramid scheme in which debts would eventually exceed the company’s income and ability to pay.
McClendon also made the decision in 2010-11 to shift Chesapeake’s gas-heavy asset mix to a more liquids-heavy one. This strategic move certainly helped during a period of zero oil prices, but the 2015-16 crash and current COVID-19 related price crash ultimately proved a heavy burden for current CEO Doug Lawler – who was recruited in 2013 – and his management team to navigate. A company that once had a market cap of over billions at one point in May saw its market cap fall to 0 million. A company that once employed more than 8,000 people now employs around 2,300.
John Thieroff, senior analyst at Moody’s Investors Service, Told the FinancialTimes On Sunday, he expected other companies to follow suit.
“There will no doubt be more people filing for bankruptcy in the near term as the sector seeks to exit the huge debt it took on during the boom,” Thieroff said.
President Donald Trump has considered bailing out the fossil fuel industry as part of a coronavirus pandemic stimulus package. The plans have met stiff resistance from environmental groups like Western Values Project, which said in May that the move was an example of the White House “using a public health crisis as an excuse to bail out the president’s cronies while leaving others to fend for themselves.”
Republished with permission from Common dreams.
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