"Hey, whats up with all this debt and shadowy dealings? You say we are in nat gas but we are selling off those assets to get into oil."
"Hey, whats up with all this debt and shadowy dealings? You say we are in nat gas but we are selling off those assets to get into oil."
The arrogant clowns at Chesapeake got themselves into this mess by their own stupidity. They monetized all their natural gas hedges last year to raise cash that they promptly blew. If they had those hedges still in place they wouldn't be in nearly as much difficulty right now with $2.50 gas. Their "hedging" program is just another cash-raising and speculative trading vehicle rather than a risk management tool. They deserve everything that they're getting. But they do have a tremendous asset base, which will be great for the lenders if things go really bad, since everything is fully mortgaged to the hilt and leveraged anyway.
I'd like to comment on this supposed "asset base" they have. First, to my knowledge several hundred thousand of their leasehold acres are in the form of good old fashioned 3 year leases. Even if they were drilling all they could, there aren't enough enough rigs in Texas to hold that acreage. So they farm out or sell to the Chinese and get carried for a fraction.
Second, I flipped a few thousand acres to them last year and I still can't believe they bought it. It was goat pasture and they paid top dollar. If that is indicative of their asset base than I'm worried.
Pics of goat pasture? People pay top dollar for good cabrito, you know.
Good point on the 3 year leases. Here's some good information I got in an e-mail today and some of their valuation is based on mcf/d and the rest is based on acreage, so some of this value is only real if the acreage is HBP - right? CXO's acquisition of 3 Rivers certainly appears to help CHK.
From Capital One:
How much CHK needs to sell to stay in debt compliance: On the conference call yesterday, CHK discussed its 70% debt to capital covenant
and max debt to EBITDA covenant of 4x debt to trailing EBITDA. Earlier this month we searched CHK's filings for its debt covenants but
couldn't find any details, so the details behind the debt covenants were new to us. Our math says that the 4x debt to EBITDA is potentially
the most restrictive covenant for the company. We estimate that trailing 4 quarter EBITDA will be ~$3.5B by the end of 3Q12 and just under
$3B by the end of the year, suggesting that the max debt that CHK could have is $12B at YE12 in order to stay in compliance. In addition to
~$2.5B in midstream and services assets, CHK will have to sell ~$5B in E&P assets between now and year-end to stay within compliance.
(Of course, another option for CHK would be to entirely pay down the credit line that has the restrictions or renegotiate the covenants on the
credit line.) We don't think it will be difficult to sell $5B in E&P assets. The Permian sale alone should fetch about that amount. We also think
that selling 25% of the Mississippian should net the company almost ~$2B based on proceeds of ~$4K/acre. Based on CHK's spending and
asset sales plans, the company should end the year with debt of <$9.5B, giving it a cushion of ~$2.5B vs its covenants.
A look at CHK's valuation: CHK is a classic case of asset rich and cash poor, but its asset monetizations in 2H12 should fix that. After quite
a bit of modeling over the last week, we feel that our $29 NAV for CHK is reasonable to conservative. Our valuation is based on a risked 2P
valuation of each area, but we think it is helpful to sometimes look at alternative valuations for each individual component to see if the total
is reasonable. Let's take a look at all of the parts of our CHK $29 NAV. Keep in mind that our $29 NAV is 85% higher than where the stock
is trading, which implies that the stock is pricing in metrics much lower than those in our NAV.
We model the Barnett and Haynesville assets at only $3.50 per share combined or $2K/Mcf/d, which is less than half the value of recent
Barnett transactions (WPX and CRZO asset sales were at ~$5K/Mcf/d). Our Marcellus valuation of $3.50 per share equates to ~$5K/Mcf/d or
less than $2K/acre, which is very reasonable for this high-quality gas asset. Our Granite wash valuation of ~$8 per share is ~8x cash flows,
which is in line with the growthy mid-cap oil companies we follow. Our $8 per share Utica valuation equates to $4K/acre. Our Mississippian
valuation of $5 per share (post assumed JV) equates to <$3K/acre. Our $4B Permian valuation ($6 per share) is almost half of what is implied
by what CXO announced this weekend on a $/acre basis. We value CHK's remaining JV carries at $2 per share. We value the Eagle Ford at
$6 per share, which equates to $5K/acre after backing out production, and the Niobrara at $3.5K/acre ($2.50 per share). We value the rest of
CHK at $8 per share, which equates to $40K/boe/d, which is reasonable given the remaining assets are ~1/3 liquids. We are valuing CHK's
service business and midstream assets at only $2 per share, which is a fraction of their book cost. We take out debt and preferred stock and
negative working capital of ~$25 per share. As usual, model available on request.
watch what happens to the price when/if aubrey is ousted
so who moves in to buy them up ?
scomce have you found employment yet
not yet, still looking and tying up loose ends from our venture.
We could probably talk them into a buy one get one free deal on gas wells.
I could see Devon being in the running to buy some of their assets, but buying all of CHK is going to pose some risk, with their enormous debt load and their tangled web of off-balance sheet financing and so forth. Think how long the due diligence for something like that might take...
My guess is that a major or NOC takes out whatever doesn't get carved out in the first few asset sales
Enron-esque 401k matching program at Chesapeake
Overall, 38 percent of Chesapeake Energy’s Savings & Incentive Stock Bonus Plan – the only 401(k) plan available to the majority of the firm’s employees – is in company stock, far above the 10 percent many plan consultants advise.
Currently, Chesapeake says about 4,000 employees are restricted from selling shares the company puts into their retirement portfolios to “match” the employee’s own contribution in the plan.
If that sounds painfully familiar, it should. I made the comment a few weeks ago that McClendon’s side deals in a company well program raised Enron overtones. Matching 401(k) contributions with company stock is another disturbing Enron parallel.
After Enron’s collapse, most companies limited the amount of their own stock employees can hold in company retirement accounts. Chesapeake is one of a small number of companies that still makes matching contributions in shares, Reuters reported.
I don't see nat gas rallying anytime soon. Is this the beginning of the end for Chesapeake ?
I work for a Fortune 500 energy company... they actually went the extra step of forcing us to liquidate any of our company's shares that remained in our 401(k) a few years ago... not only are we not allowed to invest in our company, we can't even hold old shares in our account.
(I'll note that we do have an employee stock purchase plan, but that's not a retirement account... it's simply a brokerage account where we can buy shares at a discount if we want.)
CVX and TOT are looking at buying them (rumor)
TOT bought into the eagle ford stuff big last year. CEO flew in from france and took a tour of south texas well sites, frac jobs and such
I could easily see them looking to buy but does all the EURO problems hurt their financials ?
why would anybody want to get into gas?
Buy low. Someone with staying power could make a ton of money in the long term.
Everytime I think CHK couln't trade lower, it does. I know it's not wise to catch a falling knife but CHK at $13.55 seems cheap enough. What say the finance overlords?
Chesapeake Energy faces a $3.9 billion shortfall between cash it expects to raise for the rest of the year and what it needs for new drilling and debt, according to a Chronicle analysis – a situation that could force a tough choice between cutting expenses or selling valuable assets.........
board of directors take a pay cut, very white of them
mcclendon's time to fade into the sunset ?
CHK off nearly 9% today.
http://www.fool.com/investing/genera...-criminal.aspxChesapeake: From Bad to Worse to Potentially Criminal
By Brian Stoffel | More Articles
June 25, 2012 | Comments (6)
If you thought the wheels were coming off at Chesapeake Energy (NYSE: CHK ) before, you had better take this news sitting down. A special investigation by Reuters has uncovered dozens of emails that point to illegal collusion between Chesapeake and Encana (NYSE: ECA ) to hold down the prices of land of shale-rich plays in Michigan in 2010.
Something fishy here
Imagine this: In May of 2010, the Michigan Department of Natural Resources held land auctions that drew particular interest from natural gas companies hoping to frack the state's Collingwood shale. The auction of 118,000 acres brought in a whopping $178 million for the state. A full 83% of bids had competitive offers, and Chesapeake and Encana combined to contribute 93% of the sales to the state.
Just five months later, Michigan held a similar land auction. This time, more than twice as many acres were up for sale. The result? The state brought in a paltry $9.7 million.
Whereas land went for about $1,500 per acre in May, it sold for just $35 per acre in October. It probably didn't help that natural gas prices had fallen 20% in the interim, but that hardly explains the full extent of a 98% drop in land price.
So they just announced the succession plan of McClendon. He steps down on April 1st.
Is the company worth the investment with the shady $#@!er out?
i bet he's getting a HUUUUUUUUUUUUUUGE going away package
maybe he'll start a blog giving out stock tips ?
This is actually a good tip. The market is going to react very positively.
America’s natural gas champion is calling it quits.
Chesapeake Energy Corp. CEO Aubrey McClendon, who co-founded the small Oklahoma City-based land holding company that became the nation’s second-largest natural gas producer after Exxon Mobil, will step down following a year of plummeting revenues and growing debt.
McClendon, 53, came under intense criticism over the last year as shareholders lambasted his leadership strategy that left Chesapeake heavily invested in natural gas when prices crashed to their lowest level in a decade last year.
Amid a severe cash shortfall, McClendon was then forced to take on more loans to fund an aggressive effort to expand oil production, increasing the company’s debt to more than $16 billion. Chesapeake had planned to cut its debt to $9.5 billion by the end of 2012, but appears to have failed and instead added to that total.
Falling natural gas prices led the company to report losses of as much as $2.1 billion in the third quarter of 2012. At one point last year, Chesapeake’s market value had fallen 47 percent, shrinking by about $8 billion.
McClendon was also was the subject of several investigations, including an internal probe, related to questionable financial perks and allegations of collusion. The company lost more than $1 billion in market value within days on two occasions following reports of questionable decisions by McClendon.
Those developments could have led to McClendon’s demise at the company he co-founded in 1989, said Phil Weiss, a senior energy analyst for Argus Research Group.
“I would assume that all of the allegations or representations about finances pushed it over the edge,” Weiss said.
McClendon, in a statement, referenced “philosophical differences” with the company’s new board of directors, which was transformed after an uproar from investors. McClendon will receive $11.7 million in severance pay over four years, based on his contract terms published in filings with the U.S. Securities and Exchange Commission. His total compensation for 2011 was $17.9 million and included $13.6 million in stock awards, according to SEC filings. The company has not yet published McClendon’s full compensation for 2012, although it plans to eliminate his 2012 bonus.
As part of corporate changes following investor criticisms, McClendon was pushed out as chairman of the board and replaced with former ConocoPhillips Chairman Archie Dunham, one of five new directors added to the board.
“I am extremely proud of what we have built over the last quarter of a century, and I am confident that Chesapeake is in a great position to continue to grow and achieve great success in the future as it realizes the full value of its outstanding assets,” McClendon said. “While I have certain philosophical differences with the new board, I look forward to working collaboratively with the company and the board to provide a smooth transition to new leadership for the company.”
The company said McClendon will retire April 1, about one year after natural gas prices fell to around $1.90 and the company’s stock price began to tumble.
“He has been a pioneer in the development of unconventional resources, and he has also been a leader in the effort to make the United States energy independent,” Dunham said in a statement. “However, as the company moves towards more fully developing the value of its outstanding assets, Chesapeake is at an important transition in its history and Aubrey and the board of directors have agreed that the time has come for the company to select a new leader.”
Dunham, in an internal email to Chesapeake’s 12,000 employees, celebrated the company’s progress since its founding and attempted to quash rumors of instability at the company.
Chesapeake has attempted to trim its operations in recent months, even offering buyouts to 275 employees as part of its efforts to cut costs. Dunham insisted that “the company is not for sale” and added that “the board has no intention of eliminating childcare, shutting down the fitness center, or selling the company cafeterias.”
McClendon led Chesapeake to become one of the nation’s leaders in natural gas production from shale and other resources. He was an early adopter of horizontal drilling and helped to lead the way in plays that became major sources of natural gas.
Chesapeake is attempting to transition from its prior strategy of acquiring large swaths of oil and gas drilling leases into what McClendon has called “harvest mode,” in which the company will attempt to become more of a production operation.
“Going forward, the company will strive to continue as a low cost producer of oil and gas while further enhancing and strengthening its balance sheet,” Dunham said in the statement.
The company will likely be looking for a leader that will be able to better lead a fossil fuel producer, rather than someone like McClendon, whose expertise was mainly as a land man, Weiss said.
“He built the company basically from nothing as a land man to what it is today,” Weiss said. “So he certainly created a lot of value. But at the same time … I think I wouldn’t have used all of the creative and aggressive financing that he did to get there.”
McClendon drew the ire of investors after a Reuters report raised questions about an executive perk that allowed him to take a personal ownership stake in wells that Chesapeake drilled. McClendon funded those stakes with loans from some of the same banks to which Chesapeake owed money, according to the report.
In a statement, the company said McClendon’s retirement was not related to the company’s review of his “financial arrangements and other matters.” An internal review has so far “not revealed improper conduct” by McClendon, the company said.
The company had previously focused on building up the value of its land holdings by supporting exploration and production that proved whether the regions were rich in oil and gas.
Chesapeake’s plan was to market those land assets for sale to other production companies.
But although the Chesapeake’s portfolio has swelled to one McClendon has valued at more than $60 billion, the company had heavily funded its operations through debt and was left struggling to keep business moving when natural gas prices fell. That fall left the company’s largest revenue stream in a downward spiral last year, making its expansion strategy more challenging.
McClendon adjusted his approach amid investor outrage, but stuck to his aggressive plan of boosting production while cutting debt by 25 percent each. Investors, including pension funds in New York and California, questioned the targets and called for the company to slash its debt-funded expansion plan.
According to the company’s most recent production reports, Chesapeake has succeeded in shifting its production into more lucrative oil, growing its oil production by 96 percent over the last year. But natural gas production still makes up 79 percent of the company’s production mix, denting the company’s revenue stream until natural gas prices rise substantially.
The company’s large investment in natural gas production led it to call itself “America’s Champion of Natural Gas” and promote the fuel as an alternative to gasoline and diesel. But with gas prices falling over the last year, the company has all but given up on the resource. It cut its total number of rigs exploring for gas from a projected 47 in 2012 to less than eight by the end of the year.
Although Chesapeake’s stock has rebounded recently, it remains down 14 percent over the last year. Through much of 2012, Chesapeake shares were down close to 30 percent from their mark at the start of the year.
McClendon will continue to serve as CEO until his successor is appointed, according to a Chesapeake news release.
After hours is up 10%. I didn't touch the stock because of the weasel in charge. But now sheeeeeeit. I am thinking about it.
Chesapeake Energy dropped 800 workers from its payroll Tuesday as new management continues to throttle down from an aggressive stance that threw the company into deep debt.
The Oklahoma City-based oil and gas producer’s total job cut count this year is 1,200 employees, about 10 percent of its workforce.
The move comes months after the company’s embattled co-founder and former chief executive Aubrey McClendon departed amid federal scrutiny of perks and dealings and shareholder pressure over a sharp drop in cash flow and escalating debt, which peaked at $16 billion last year.
Investors erased $8 billion from Chesapeake’s market value at one point last year.
“By scaling E&P support services, reducing management layers, and aligning resources with a sharpened focus on accountability and efficiency, we have created a business built to deliver a sustainable and profitable future,” Doug Lawler, the company’s chief executive since June, said in a letter to employees Tuesday. The company has ended its organizational restructuring for now, he wrote.
Last month, Lawler told investors at a Barclays conference that Chesapeake would focus on balancing the company’s expenditures with operational cash flow and allocate capital to only the most lucrative projects.
The company also slashed spending in half this year to $7.2 billion, a big change from a decade outspending the cash flow and building a reputation as one of the most aggressive land grabbers among U.S. producers.
In July, the country’s second-largest natural gas producer sold off $1 billion in Eagle Ford and Haynesville shale assets.
Chesapeake has also chipped away at its rig count, sitting now at half its fleet from two years ago. That drop accounts for half of the fall in active rigs in the U.S., according to Raymond James.
Wall Street appears to like the shift in strategy. The company’s stock price dipped less than 1 percent Tuesday but over the past year has come up 34 percent to $26.05.
wonder if he'll also be giving investment strategies ?
A group of private equity firms is backing former Chesapeake Energy chief Aubrey McClendon in his new exploration and production venture in the Utica Shale in Ohio with $1.7 billion in financial commitments.
A Utica-focused subsidiary of McClendon’s new American Energy Partners LP plans to lease and drill 110,000 net acres in the southern region of the eastern Ohio shale play, starting with one rig in the fourth quarter. Over the next two to three years, American Energy wants to increase its rig count to at least 12, the Oklahoma City-based firm said Wednesday.
The bulk of the new equity comes from The Energy & Minerals Group in Houston, but First Reserve and GSO Capital Partners, both of which have offices in Houston, boosted the young producer, as well. The sum also includes debt from Magnetar Capital and others.
Jumping back into unconventional drilling, McClendon started American Energy in April after departing from the Oklahoma City-based Chesapeake. His exit from the oil and gas producer followed months of controversy surrounding perks he had received and shareholder pressure to shore up the balance sheet.
American Energy said it will be on the prowl for more acreage in the Utica to acquire and develop.
I thought he was moving to Michigan to $#@! it up
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