Chesapeake Energy’s filing for bankruptcy on Sunday might be a way for the company to eliminate billions in debt, but for other companies in the energy service and pipeline industry, it’s worrisome.
That’s because some of those companies are among those owed the billions in debt or have service contracts with the Oklahoma City company. The filing, according to a report by Reuters only adds to the economic challenges and woes of companies whose revenues were already being slammed in the collapse of oil prices.
Chesapeake, the sixth-largest U.S. natural gas producer, sought protection from creditors on Sunday in U.S. Bankruptcy Court for Southern District of Texas in the biggest oil and gas bankruptcy in five years. Its Chapter 11 filing, citing $10 billion in debts, would affect drilling firms and gas transporters from Texas to Wyoming to Pennsylvania.
Williams Cos, Energy Transfer and Crestwood Equity Partners have contracts with Chesapeake that face rate cuts or rejections in bankruptcy court, said Ryan Smith, a senior director at energy information provider East Daley Capital.
Consolidated Edison Inc earlier this month asked U.S. gas regulators to declare Chesapeake must seek approval before canceling regulated natural gas contracts in bankruptcy court.
Crestwood declined to comment. Energy Transfer did not respond to requests for comment.
Crestwood last month lowered its 2020 pre-tax earnings forecast by $60 million, but said it expected to generate “significant free cash flow” this year and next.
Williams, one of the largest natural gas pipeline operators, reduced its exposure to Chesapeake, to 6% of revenue from 18% five years ago, and expects to continue providing services amid any restructuring, said Vice President Laura Creekmur.
“We are confident in our ability to defend the integrity of our contracts,” she said in response to questions about the filing’s impact. Williams’ pipelines remain integral to “maximize the value” of Chesapeake’s assets.
Patterson-UTI Energy, the driller that acquired a former Chesapeake unit, said in a February regulatory filing that under a tax-sharing agreement it could face a “material adverse effect” were Chesapeake to fail to pay taxes potentially due on the split. Ahead of the bankruptcy filing, Patterson-UTI said it did not believe it has “material exposure to any Chesapeake liability” based on its earlier filings.