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When it comes to the oil and gas sector, Chesapeake Energy helped turn the world upside down.
The company led the rise of fracking, the technique for extracting oil and gas from tight rock formations using high-powered water. The ensuing rise of the shale sector in the northwest U.S. transformed the world’s energy dynamics. The boom turned the country from a major importer to a frequent exporter, and sank global oil and gas prices worldwide. In the process, the company was fined by Pennsylvania state officials for contaminating drinking water, as part of broader accusations that fracking imperils groundwater, sickening animals and people.
“The tech sector dubs companies or people that shake up the status quo as disrupters,” said Alex Beeker, principal analyst on the corporate upstream team at energy analysts Wood Mackenzie. “For the U.S. shale sector, there [has] been no bigger disrupter than Chesapeake.”
Robert Clarke, vice president at Wood Mackenzie for the U.S. lower 48 upstream division, agrees: “At my first analyst day Chesapeake held, I overheard hedge fund analysts saying: ‘What is this place? The Google of oil and gas?’ And, yes, in a way, it was.”
But on Monday, the company filed for bankruptcy, becoming only the latest stalwart of the U.S. shale boom to come crashing down since the COVID-19 pandemic gripped the world.
While Chesapeake had come close to bankruptcy before, and the current filing was rumored for months, the pandemic appeared to send the company, and other shale sector businesses including Whiting Petroleum, into further distress.
Much of the sector went into 2020 with analysts already concerned about sky-high debt levels, unprofitable wells, and waning productivity—and the hit to demand for oil and gas owing to lockdowns only pushed many of those businesses over the edge. Chesapeake had its own ills: New management, installed after the departure of controversial founding CEO Aubrey McClendon in 2013, had failed to rid the business of the mountains of debt it had accrued through years of flashy buying sprees that came to include not just vast tracts of land for drilling, but a tony brick campus and a branded stadium in Oklahoma.
“Chesapeake was the undisputed master of U.S. shale gas,” said Per Magnus Nysveen, head of analysis at Norwegian consultancy Rystad Energy. “The massive financial burden of investing first into the shale gas boom, then its failed attempt to grow a similar strong position on oil plays, have brought the giant to its knees.”
The glut of oil and gas from the shale boom, vastly more than the world needed, sent prices spiraling across the world, kicking off the 2014 price war as Saudi Arabia attempted to keep its market share of the world’s oil and gas production, followed by years of production cuts led by OPEC+. Chesapeake’s own prolific production contributed to that spiral.
The lockdown is likely to extend a trend that was playing out even before the pandemic hit. As shale pioneers like Chesapeake buckle, assets in the region—centered on northwest Texas—are being bought up not by other “disrupters” but the legacy companies of the sector: Exxon Mobil and Chevron.
More must-read energy sector coverage from Fortune:
- COVID-19 is crippling the energy market, with one big exception: renewables
- Why the coronavirus crisis could make Big Oil greener
- Buccaneers of the basin: The fall of fracking—and the future of oil
- The U.K.’s lockdown is making the country’s electricity grid greener—for good
- For boom-bust oil towns, the coronavirus is a very different kind of crisis
