This article was first published on Rigzone here

Chesapeake Energy Corporation announced Sunday that the company has voluntarily filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas.

The company said it intends to use the proceedings to strengthen its balance sheet and restructure its legacy contractual obligations to achieve a more sustainable capital structure. Chesapeake noted that it will operate “in the ordinary course” during the Chapter 11 process, which is expected to eliminate around $7 billion of debt.

“We are fundamentally resetting Chesapeake's capital structure and business to address our legacy financial weaknesses and capitalize on our substantial operational strengths,” Doug Lawler, Chesapeake's president and chief executive officer, said in a company statement.

“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,” he added.

“With these demonstrated strengths, and the benefit of an appropriately sized capital structure, Chesapeake will be uniquely positioned to emerge from the Chapter 11 process as a stronger and more competitive enterprise,” Lawler continued.

This filing has been a long time coming, according to Alex Beeker, a principal analyst on Wood Mackenzie’s corporate upstream team.

“It was likely going to happen with or without Covid-19,” Beeker said in a statement sent to Rigzone on Sunday.

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“Chesapeake refinanced debt at an interest rate above 10 percent in December 2019. The term loan facility included some aggressive covenant provisions, including a quarterly step-down in the net debt-to-EBITDA ratio,” he added.

“The company was forced to make some difficult decisions, notably whether or not to keep drilling unprofitable wells to support EBITDA just to avoid breaching debt covenants,” Beeker continued.

The Wood Mackenzie representative said it was difficult to point to another company that made more of a widespread impact on the U.S. shale sector than Chesapeake.

“The tech sector dubs companies or people that shake up that status quo as disruptors. For the U.S. shale sector, there was been no bigger disruptor than Chesapeake,” Beeker stated.