Chesapeake files for bankruptcy protection

Spanish Market: Crude oil, Natural gas
28/06/20

Chesapeake Energy, the one-time high-flying natural gas producer that thrust US shale development onto a world stage, filed for Chapter 11 bankruptcy protection today as collapsing energy prices challenged the company's ability to carry its more-than $9bn in debt.

The company will eliminate about $7bn in debt under the bankruptcy plan and has secured $925mn in debtor-in-possession financing. The company will continue to operate through the process.

Oklahoma City-based Chesapeake was an early champion of using horizontal drilling and hydraulic fracturing to coax natural gas from shale rock formations. Led by its outspoken co-founder and chief executive, the late Aubrey McClendon, it developed one of the largest portfolios of US shale assets, became the biggest producer of US natural gas by volume and lured billions of dollars in investment into the shale industry. The company also advocated for more gas use in the power and transportation sectors and was a booster of US gas exports.

Chesapeake issued billions of dollars in debt to amass huge acreage positions in places such as the Marcellus shale gas field in Pennsylvania and the surrounding states, the Haynesville shale of east Texas and northern Louisiana and throughout its home state of Oklahoma. At its height the company deployed thousands of landmen to far-flung oil and gas fields, often paying top dollar for leases. Chesapeake in 2012 had more than $16bn in debt, but worked it down to $9bn in May, when it told investors that low oil and gas prices may force it to default on its loans.

The company last year produced about 2.3 Bcf/d (65mn m³/d), making it the sixth largest US producer by volume. Prices for gas, which still represents the bulk of Chesapeake's output tumbled below $2/mmBtu on a mild winter and robust supplies. Oil prices hit unprecedented lows in April as the global economic slowdown from the Covid-19 pandemic crimped demand for transportation fuels.

Leading the charge into shale

Chesapeake and other so-called independent oil and gas producers sought out new fields armed with easy access to capital and a simple pitch: The US, through the development of shale formations, could unlock energy independence and wean itself from foreign oil. The rapid growth of US shale output and Chesapeake's success at developing those fields caught the attention of companies across the world.

Chesapeake entered into multi-billion dollar joint-venture agreements with major international oil and gas companies, such as Statoil of Norway, French oil major Total and the Chinese state-controlled oil company CNOOC. The deals usually involved exchanging shale acreage for cash and capital to defray drilling costs.

The company's success at this strategy also created the circumstances for its fall. The US in 2011 surpassed Russia to become the world's top gas producer, but the deluge of domestic gas pushed prices lower and made the going tougher for producers that had hitched their future to higher prices.

Turn to crude

Chesapeake attempted to pivot, shifting away from gas production and focusing on higher-value NGLs and oil. The company in 2010 set its sights on becoming one of the biggest producers of liquids in the US. At an energy conference in 2011 McClendon said that the US could become the biggest producer of oil as it continued to tap unconventional crude deposits.

"We are already No. 3, and I think there's an excellent chance by 2020 to return to being the No. 1 oil producer in the world," McClendon said at the Jefferies Global Energy Conference in Houston. "We held that title for 75 years."

The US reached that milestone in 2018, two years ahead of that schedule.

Chesapeake by 2012 had been stung by a low natural gas prices. Its cost to acquire, retain and begin developing properties far outpaced its cash flow. Much of the company's cost strain stemmed from being forced to drill wells to satisfy lease terms.

Chesapeake sold off assets and took out high interest lows. McClendon in early 2013 stepped down following differences with the board. He was replaced by Doug Lawler, a former Anadarko Petroleum executive, in May 2013. Lawler put a stop to McClendon's strategy of endless acquisitions, began selling assets, cutting costs and funding only wells that will generate high returns on investment.

Chesapeake in May said it did not expect to meet its financial covenants starting the in the 2020 fourth quarter. On 19 June the company said it chose not to make an interest payment on outstanding debts, setting the stage for the bankruptcy filing in the Southern District of Texas.

US shale industry asset impairments may top $300bn, raising the prospect of an acceleration in bankruptcies, consultancy Deloitte said in a 22 June report.

By Jason Womack

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22/11/24

Cop 29 goes into overtime on finance deadlock

Developing countries' discontent over the climate finance offer is meeting a muted response, writes Caroline Varin Baku, 22 November (Argus) — As the UN Cop 29 climate conference went into overtime, early reactions of consternation towards a new climate finance draft quickly gave way to studious silence, and some new numbers floated by developing nations. Parties are negotiating a new collective quantified goal — or climate finance target — building on the $100bn/yr that developed countries agreed to deliver to developing countries over 2020-25. The updated draft of the new finance goal text — the centrepiece of this Cop — proposes a figure of $250bn/yr by 2035, "from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources". This is the developed country parties' submission, the Cop 29 presidency acknowledged. Developing nations have been waiting for this number for months, and calling on developed economies to come up with one throughout this summit. They rejected the offer instantly. "The [$250bn/yr] offered by developed countries is a spit in the face of vulnerable nations like mine," Panama's lead climate negotiator, Juan Carlos Monterrey Gomez, said. Negotiating group the Alliance of Small Island States called it "a cap that will severely stagnate climate action efforts". The African Group of Negotiators and Colombia called it "unacceptable". This is far off the mark for developing economies, which earlier this week floated numbers of $440bn-600bn/yr for a public finance layer. They also called for $1.3 trillion/yr in total climate finance from developed countries, a sum which the new text instead calls for "all actors" to work toward. China reiterated on 21 November that "the voluntary support" of the global south was not to be counted towards the goal. A UN-mandated expert group indicated that the figure put forward by developed countries "is too low" and not consistent with the Paris Agreement goals. The new finance goal for developing countries, based on components that it covers, should commit developed countries to provide at least $300bn/yr by 2030 and $390bn/yr by 2035, it said. Brazil indicated that it is now pushing for these targets. The final amount for the new finance goal could potentially be around $300bn-350bn/yr, a Somalian delegate told Argus . A goal of $300bn/yr by 2035 is achievable with projected finance, further reforms and shareholder support at multilateral development banks (MDBs), and some growth in bilateral funding, climate think-tank WRI's finance programme director, Melanie Robinson, said. "Going beyond [$300bn/yr] would even be possible if a high proportion of developing countries' share of MDB finance is included," she added. All eyes turn to the EU Unsurprisingly, developed nations offered more muted responses. "It has been a significant lift over the past decade to meet the prior goal [of $100bn/yr]," a senior US official said, and the new goal will require even more ambition and "extraordinary reach". The US has just achieved its target to provide $11bn/yr in climate finance under the Paris climate agreement by 2024. But US climate funding is likely to dry up once president-elect Donald Trump, a climate sceptic who withdrew the US from the Paris accord during his first term, takes office. Norway simply told Argus that the delegation was "happier" with the text. The EU has stayed silent, with all eyes on the bloc as the US' influence wanes. The EU contributed €28.6bn ($29.8bn) in climate finance from public budgets in 2023. Developed nations expressed frustration towards the lack of progress on mitigation — actions to cut greenhouse gas emissions. Mentions of fossil fuels have been removed from new draft texts, including "transitioning away" from fossil fuels. This could still represent a potential red line for them. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Opinion: Bridging the divide

22/11/24

Opinion: Bridging the divide

Cop summits put the gap between developed and developing countries in stark relief and demand a strong moderator Baku, 22 November (Argus) — The UN's Cop climate summits always involve a high-stakes test of multilateralism. But the Cop 29 gathering that is crawling towards its conclusion in Baku this week has pushed this concept to its limit. The summit faced serious challenges even before it kicked off. Azerbaijan took on the presidency relatively late in the day and the country's president, Ilham Aliyev, irritated some delegates with an opening speech that lauded oil and gas as a "gift from God" and railed against "western fake news". His comments on European nations' Pacific island territories prompted France's energy minister to boycott the talks, while the Cop chief executive was caught on film trying to facilitate fossil fuel deals. And the broader geopolitical background for the gathering was, of course, "grim", as EU climate commissioner Wopke Hoekstra noted, even before delegates tackled the summit's key discussion topic — money. At the heart of this year's Cop is the need to agree a new climate finance goal — a hugely divisive subject at the best of times. Discussions start with countries' wealth, take into account historical responsibility for emissions, and often end up with accusations of neocolonialism and calls for reparations. Figuring out who pays for what is crucial to advancing any kind of meaningful energy transition — and is hence a regular Cop sticking point. Developing countries have long argued that they are not able to decarbonise or implement energy transition plans without adequate financing, and they are prepared to hold other issues hostage to achieve this. Equally, developed countries will not budge on finance until stronger emissions cuts are pledged. Cop summits throw the developed/developing world divide into stark relief as well as shine an unforgiving light on weak management and oversight of Cop debate — an event where every country has an equal vote and needs a strong moderator to bridge that deepening developed and developing world division. This year's summit falls between two much more heavily-hyped Cops, and next year's host Brazil has already taken centre stage, boosted by also holding the G20 presidency. Cop 29 president Mukhtar Babayev asked Brazil and 2021 host the UK to help ensure a balanced outcome, while a strong focus on climate at this week's G20 summit in Rio de Janeiro lent some support to discussions in Baku. More challenges loom. US president-elect Donald Trump has threatened to pull the US — the world's second-largest greenhouse gas emitter — out of the UN Paris Agreement for a second time, and there are fears that fellow G20 member Argentina might quit too. But the Cop process has dealt with some of these challenges before — it is built to withstand a term or two of an unsympathetic world leader, and any exits from the Paris accord could galvanise others to step up their policy commitments, several delegates in Baku suggest. And the issue overshadowing it all — and the reason nearly 200 countries still turn up each year — is not going away. The world has already warmed by around 1.3°C above pre-industrial levels and this year is set to smash last year's record as the hottest. Leaders from both developed and developing countries spoke of catastrophic floods, droughts, heatwaves and storms. It has become a truism, but when it comes to the tricky issue of money, the only thing more daunting than the cost of tackling climate change is the cost of ignoring it. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Cop: Brazil eyes $300bn/yr for climate finance goal

22/11/24

Cop: Brazil eyes $300bn/yr for climate finance goal

Baku, 22 November (Argus) — Brazil has set out a suggestion of "at least" $300bn/yr in climate finance to be provided by developed countries to developing nations. Brazilian representatives set out their proposal today, in response to a draft text on a new climate finance goal. Brazil's proposal of $300bn/yr in climate finance by 2030 and $390bn/yr by 2035 are in line with the recommendations of a UN-mandated expert group. Negotiations at Cop are continuing late into the evening of the official last day of the conference, with no final texts in sight. Discussions centre around the new collective quantified goal (NCQG) — the climate financing that will be made available to developing countries in the coming years to help them reduce emissions and adapt to the effects of climate change. The presidency draft text released this morning put the figure at $250bn/yr by 2035, with a call for "all actors" to work towards a stretch goal of $1.3tn/yr. Representatives of developing countries have reacted angrily to the figure put forward in the text, saying it is far too low. Brazil's proposal appears to call for all of the $300bn-$390bn to be made up of direct public financing, which could then mobilise further funding to reach the $1.3tn/yr. It was inspired by the findings of a UN report, Brazil said. The UN-backed independent high-level group on climate finance today said that the $250bn/yr figure was "too low," and recommended the higher $300bn-390bn/yr goal. Brazil's ask would be a significant step up in the required public financing. The $250bn/yr target includes direct public financing and mobilised private financing, and potentially includes contributions from both developed and developing countries. Wealthier developing countries have been hesitant to see their climate financing fall in this category, which they say should be made up exclusively of developed country money, in line with the Paris Agreement. But $300bn/yr would represent an increase in ambition, Brazil said, while the $250bn/yr called for in the draft text would be very similar to the $100bn/yr goal set in 2009, after taking into account inflation. Delegates at Cop look set to continue discussions into the night. A plenary session planned for late in the evening, which would have allowed parties to express their positions in public, has been cancelled, suggesting groups still have differences to hammer out. By Rhys Talbot Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Cop: Drafts point to trade-off on finance, fossil fuels

22/11/24

Cop: Drafts point to trade-off on finance, fossil fuels

Baku, 22 November (Argus) — The new draft on the climate finance goal from the UN Cop 29 climate summit presidency has developed nations contributing $250bn/yr by 2035, while language on fossil fuels has been dropped, indicating work towards a compromise on these two central issues. There is no mention of fossil fuels in either the new draft text on the global stocktake — which follows up the outcome of Cop 28 last year, including "transitioning away" from fossil fuels — or in the new draft for the climate finance goal. Developed countries wanted a reference to moving away from fossil fuels included, indicating that not having one would be a red line. The new draft text on the climate finance goal would mark a substantial compromise for developing countries, with non-profit WRI noting that this is "the bridging text". Parties are negotiating the next iteration of the $100bn/yr that developed countries agreed to deliver to developing nations over 2020-25 — known as the new collective quantified goal (NCQG). The new draft sets out a figure of $250bn/yr by 2035, "from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources". It also notes that developed countries will "take the lead". It sets out that the finance could come from multilateral development banks (MDBs) too. "It has been a significant lift over the past decade to meet the prior, smaller goal... $250bn will require even more ambition and extraordinary reach," a US official said. "This goal will need to be supported by ambitious bilateral action, MDB contributions and efforts to better mobilise private finance, among other critical factors," the official added. India had indicated earlier this week that the country was seeking around $600bn/yr for a public finance layer from developed countries. Developing countries had been asking for $1.3 trillion/yr in climate finance from developed countries, a sum which the new text instead calls for "all actors" to work toward. The draft text acknowledges the need to "enable the scaling up of financing… from all public and private sources" to that figure. On the contributor base — which developed countries have long pushed to expand — the text indicates that climate finance contributions from developing countries could supplement the finance goal. It is unclear how this language will land with developing nations. China yesterday reiterated that "the voluntary support" of the global south is not part of the goal. The global stocktake draft largely focuses on the initiatives set out by the Cop 29 presidency, on enhancing power grids and energy storage, though it does stress the "urgent need for accelerated implementation of domestic mitigation measures". It dropped a previous option, opposed by Saudi Arabia, that mentioned actions aimed at "transitioning away from fossil fuels". Mitigation, or cutting emissions, and climate finance have been the overriding issues at Cop 29. Developing countries have long said they cannot decarbonise or implement an energy transition without adequate finance. Developed countries are calling for substantially stronger global action on emissions reduction. By Georgia Gratton and Prethika Nair Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Pemex's lean Zama spending undercuts goals

21/11/24

Pemex's lean Zama spending undercuts goals

Mexico City, 21 November (Argus) — State-owned oil company Pemex's limited budget for developing one of Mexico's most-promising new oil fields is putting Mexico's crude production and refining goals at risk through 2030. First production from the Zama field will likely not start until at least 2028 instead of late next year, as forecast earlier, based on a timeline in a recent presentation from Pemex. Pemex continues to work on the basic engineering for the Zama field because of the lack of cash, staff of hydrocarbon regulator CNH said last week. The latest delay on Zama echoes criticism from when Pemex took over operating the field in 2022 that it did not have sufficient experience or funds to carry on with the project, said industry sources. "Unfortunately, the Pemex budget is always a shadowy mystery," said a person close to the project who asked not to be named. "There is no transparency or certainty regarding when they do and do not honor payment commitments." Zama is a shallow-water field unified in 2022 between Pemex area AE-152-Uchukil and the discovery made in 2017 by a consortium led by US oil company Talos Energy. Pemex holds 50.4pc of the Zama project while Talos and Slim's subsidiary Grupo Carso have 17.4pc, German company Wintershall Dea 17.4pc and British company Harbour Energy 12.4pc. The state-owned company expects to spend $370.8mn to develop Zama in 2025, 64pc less than the original $1.05bn budget proposed by Pemex for next year, according to data from CNH. The regulator cleared the change last week, but commissioners questioned the CNH staff about the new delays. Pemex's original development plan showed that the company forecast the first crude production by December 2025, with 2,000 b/d and about 4mn cf/d of gas. The original plan forecast Zama hitting peak production of 180,000 b/d in 2029, making it Mexico's second-largest crude producer, only under the Maloob field. President Claudia Sheinbaum and Pemex's new new chief executive Victor Rodriguez flagged the importance of shallow-water field Zama and ultra deep field Trion to support Pemex's oil production target of 1.8mn b/d in the upcoming six years in a presentation last week. Pemex's new plan is focused on feeding its own refining system rather than crude exports. The company expects to increase gasoline, diesel and jet fuel production by 343,000 b/d, according to the plan, but it did not give a timeline. Pemex produced 491,000 b/d of gasoline, diesel and jet fuel in the first nine months of 2024. Mexico's proposed 2025 federal budget also shows lower spending for Zama, at Ps3.1bn ($154mn) for 2025, even less than the figure approved by CNH on 14 November. Neither Pemex not Talos responded to requests for additional comment. "Zama is the story of the triumph of ideology over practicality," said a Pemex source who asked not to be named. The state-owned company is studying how to bring in new investors to the project once congress approves secondary laws to implement recent energy reforms, the source said. But uncertainty over the legal framework and the general deterioration of Mexico's business climate will make this more difficult, the Pemex source added. The involvement of Mexican billionaire Carlos Slim, who acquired 49.9pc of Talos Energy share in Zama last year, brought new hopes that work at Zama could finally accelerate. Instead, Slim's entrance slowed the project, as the new partner had to review the project, a former regulator who asked not to be named said. Talos Energy, the lead operator when the field was discovered over seven years ago, is now "frustrated" by the poor progress of the project. "We have Mexico, a great discovery in Zama, we're seven years into it, and still have not made a final investment decision on it," said Talos Energy interim chief executive Joseph Mills, in a conference call with investors last week. "So a lot of frustration there, as you can imagine." By Édgar Sígler Pemex 2024 crude output, throughput '000 b/d Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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