Smaller, slower and more profitable. These are the watchwords for Chesapeake Energy as it emerges from bankruptcy. Free of the colossal liabilities that sank it as the pandemic slashed global energy demand last year, the company has also abandoned the growth-at-all-costs strategy that made it a pioneer of the shale revolution — and poster child of the sector’s debt-fuelled excess. Chesapeake’s market value will be a fraction of the $35bn it boasted more than a decade ago, back when its controversial founder, the late Aubrey McClendon, was America’s best-paid chief executive and his company poured money into everything from Oklahoma real estate to an NBA arena. The new Chesapeake pledges to spend less than it brings in and return the excess to shareholders.
Outside the US oil and gas industry, this wouldn’t sound radical. Within the business, it is a departure. The only feature that matched shale’s disruptive rise in the past 15 years — more than doubling US oil and gas production and sharply reducing dependence on foreign oil supplies — was the industry’s unmatched knack for destroying investors’ money, as hundreds of billions of dollars were spent with little return. Wall Street reacted by dumping its stocks, making the sector one of the S&P 500’s smallest. When the worst oil crash in decades struck last year, operators were forced to slash capital expenditure, sack tens of thousands of workers, idle rigs, and cut production. Chesapeake’s Chapter 11 filing was just the most high-profile of scores of bankruptcies.
Now, promise shale executives, a more resilient industry is emerging from the ashes that aims to woo investors. Like the reincarnated Chesapeake, it will be smaller — some analysts believe the sector will be reduced to just 10 dominant shale producers. Production increases will be modest, and financed from cash flow. And activity will focus on fewer prolific shale fields, mainly in Texas. Oil operators that feared new US president Joe Biden’s ambition to launch a green energy revolution would stymie the industry’s drilling and slow production growth, now promise to do both themselves.