Chesapeake Energy’s former fracking unit plans bankruptcy filing

Seventy Seven Energy, the shale fracker spun off by Chesapeake Energy less than two years ago, plans to file for bankruptcy protection.

As part of a pre-packaged Chapter 11 plan the company intends to file no later than May 26, Seventy Seven reached an agreement with creditors to restructure most of its debt load, according to a statement released Tuesday.

The Oklahoma City-based oilfield services company will give new common stock to investors holding 92 percent of the principal in an outstanding term loan and 57.7 percent of Seventy Seven’s 6.625 percent senior notes maturing in 2019, according to the statement. The agreement will convert about $1.1 billion of the company’s debt into shares, or about 69 percent of Seventy Seven’s total obligations to creditors.

“The exchange of debt for equity will provide us with a significantly deleveraged balance sheet, and we will emerge from this process as a stronger company,” Chief Executive Officer Jerry Winchester said in the statement. “After a thorough evaluation of our options, we are confident this is the correct path that will enable us to take advantage of our operational strengths and strong asset base to proactively grow our business as market conditions improve.”

The company plans to pay all trade creditors and holders of unsecured debt, according to the statement. Shares (ticker: SSE) fell 58 percent to 28 cents by mid-morning in New York.

Seventy Seven was spun off from Chesapeake in July 2014 as part of CEO Doug Lawler’s efforts to streamline the Oklahoma City oil and gas producer. At the time, Chesapeake investors received one share of Seventy Seven for every 14 they owned in Chesapeake.

Chesapeake was a leader in the development of the Barnett Shale gas field last decade, and now faces hundreds of lawsuits from property owners who claim they were cheated out of royalty dollars. The energy company has recently been settling some of the lawsuits.

This story was originally published April 19, 2016 at 9:30 AM with the headline "Chesapeake Energy’s former fracking unit plans bankruptcy filing."