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Chesapeake Energy, U.S. biggest shale firm, near bankruptcy

Christian Fernsby |
Chesapeake Energy has signalled that it might not be able to stay in business much longer, as the ongoing slump in oil prices has hampered the firm’s ability to service its debts.

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The widespread lockdowns imposed across much of the world to limit the spread of the Covid-19 pandemic have severely reduced demand for oil in recent months. While this posed a serious threat to the booming US shale industry, the short but severe price war between Russia and Saudi Arabia was the final nail in the coffin.

With the oil market flooded as a result of the spat and American oil inventories filling up, the regular drilling of new deposits required to maintain smooth shale production became unprofitable. Fewer than 10 major energy firms have been able to weather the storm, while hundreds of smaller operations have struggled.

Chesapeake Energy Corp can be said to have pioneered much of the shale boom of recent decades, which helped the US become a net exporter, rather than a net importer, of oil.

However with a combined debt of over $1bn (£812bn, €920bn) by way of debt maturities and interest expenses, the freak and unprecedented crisis triggered by the novel coronavirus outbreak could not have come at a worse time. A quarter of this figure in senior notes was due this year.

Chesapeake’s share price plunged 17 per cent on the announcement that the firm is close to bankruptcy.

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