Shale Daily Update – 6.29.2020

Chesapeake Energy announced on Sunday that it would seek protection under Chapter 11 of the bankruptcy code. It recently skipped a $15 million debt payment.
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What You Should Know in Oil and Gas Today

The Big Story

Chesapeake Energy announced on Sunday that it would seek protection under Chapter 11 of the U.S. bankruptcy code. The company had been the subject of rampant rumors in the industry and media over the past years, as it has teetered on the brink of bankruptcy, most recently skipping a $15 million debt payment two weeks ago.

CEO Doug Lawler and his management team have navigated Chesapeake through difficult financial struggles since 2013, when he was brought in to replace company founder Aubrey McClendon. McClendon had bet big on high natural gas prices remaining in place for decades, a bet that did not pay off in the long run as massive new shale plays were discovered and developed.

McClendon incurred a high level of debt while acquiring gas assets during the ’00s, a load that the company found increasingly difficult to service as commodity prices collapsed in recent years.

You will no doubt see lots of piece today that are critical of McClendon and his assumptions about natural gas. But you probably won’t see most of those piece point out the reality that his assumptions basically reflected the common wisdom prevalent in the industry during the early years of this century.

Everyone should also keep in mind that any bankruptcy filing is a sad and nerve-wracking development for the company’s employees. Let’s hope Chesapeake is able to come out the other end of the Chapter 11 reorganization process in a healthier state financially, and that most of its 2,300 employees will be able to retain their jobs.

In other news…

Oil prices are headed upwards this morning as a result of positive new economic data. WTI was trading at $38.70 as of this writing. Positive economic news out of China and Europe is driving today’s momentum.

At the same time, the new Frac Spread Count from Primary Vision stands at 70 active spreads nationwide. That’s down from 78 the previous week, so we appear to be stagnating. The Enverus Daily Rig Count, which reached an all-time low of 288 last week, sits at just 290 nationally, signaling that, while some companies are re-activating some shut-in wells thanks to slightly healthier oil prices, they are not re-activating dormant drilling programs.

This should work out well. After being denied a permit to drill a well by the City of Arlington earlier this month, French giant Total has applied for more permits within that city’s limits with the Texas Railroad Commission. Sergio Chapa reports in today’s Houston Chronicle that Total applied last week for 8 such permits for wells that would be drilled from two already-existing drilling pads. It will be interesting to see what the city council does with these plans.

Paul Takahashi at the Chronicle has a good piece about a new report from Rystad Energy. Rystad reports on concerns that this new increase in COVID-19 cases could end up creating a double-dip in oil prices. Heaven forbid.

That’s all for today.














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