CHK - Chesapeake Energy In Trouble?
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- Start date
CHK produces 92 % gas. They have roughly 75 % of their 2008 production hedged at prices averaging over $9. Over half of 2009 production is hedged at >$9. 24% of 2010 is hedged in the high $9 range.
They are trading down as much or more than companies that are basically unhedged. While some of it, as landis points out, is due to their heavier debt load, I have to think most of their drop is due to the fact that they were heavily owned by hedge funds that are being forced to liquidate.
No one knows where this ends, but I have to think getting the premier large cap name for <2x cash flow is a great deal.
By Christine Buurma
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)âShares of Chesapeake Energy Corp. (CHK) fell 16% Friday,
extending this weekâs steep slide amid the broad selloff in equities, and on
concerns over the companyâs exposure to the credit crisis and slowing growth.
The Oklahoma City-based natural gas producer has borrowed heavily to fund land
purchases and drilling amid a boom in gas production in Texas, Louisiana,
Pennsylvania and elsewhere. This has spooked investors as the credit markets
have frozen, and exacerbated a steep drop in Chesapeakeâs market value as the
price of gas has dropped by half since early July. In response, Chesapeake has
cut its spending and drilling plans, and is scrambling to sell some assets.
Analysts said unsubstantiated rumors of liquidity problems Thursday sent the
cost of insuring Chesapeakeâs debt soaring, and hit the companyâs shares.
However, these analysts added that the company doesnât appear to be facing any
immediate cash crunch.
âBottom line - unless there is some hidden situation that has developed in the
past week, CHK will weather this storm,â Tudor Pickering Holt analysts wrote in
a note Friday. They noted that several service companies told them they are
being paid âpromptly and currentlyâ by Chesapeake.
Chesapeake Chief Executive Aubrey McClendon told The Wall Street Journal that
the company expects to end the year with $5 billion to $6 billion in cash,
enough to keep growing without tapping the capital markets.
âWe spoke with Chesapeake management following Thursdayâs 21% stock sell-off,â
wrote Jason Gammel, an equity analyst with Macquarie Research in New York, in a
note to clients Friday. âWe are satisfied following this conversation that
Chesapeake remains liquid, still generating a strong level of earnings and
cashflow and remains well within the provisions of its debt covenants.â
The difficult credit environment could make it harder for Chesapeake to raise
capital by selling assets. Chesapeake is trying to sell minority stakes in the
companyâs midstream assets and in its properties in Pennsylvaniaâs Marcellus
natural gas shale. The company also plans to sell a so-called volumetric
production payment, which entitles the purchaser to receive scheduled
quantities of natural gas from Chesapeakeâs interests in producing wells.
Chesapeake has aggressively purchased leases for millions of acres in natural
gas shale formations over the past few years, at one point planning to spend
$18 billion in 2008, more than three times the companyâs operating cash flow.
But falling natural gas prices have led the company to scale back its capital
expenditures.
Chesapeake shares were recently down $2.83, or $16, at $14.88, after falling
21% on Thursday. Shares are down 78% from their 52-week intraday high of $74
hit on July 2.
-By Christine Buurma, Dow Jones Newswires; 201-938-2061
October 10th,
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)âShares of Chesapeake Energy Corp. (CHK) fell 16% Friday,
extending this weekâs steep slide amid the broad selloff in equities, and on
concerns over the companyâs exposure to the credit crisis and slowing growth.
The Oklahoma City-based natural gas producer has borrowed heavily to fund land
purchases and drilling amid a boom in gas production in Texas, Louisiana,
Pennsylvania and elsewhere. This has spooked investors as the credit markets
have frozen, and exacerbated a steep drop in Chesapeakeâs market value as the
price of gas has dropped by half since early July. In response, Chesapeake has
cut its spending and drilling plans, and is scrambling to sell some assets.
Analysts said unsubstantiated rumors of liquidity problems Thursday sent the
cost of insuring Chesapeakeâs debt soaring, and hit the companyâs shares.
However, these analysts added that the company doesnât appear to be facing any
immediate cash crunch.
âBottom line - unless there is some hidden situation that has developed in the
past week, CHK will weather this storm,â Tudor Pickering Holt analysts wrote in
a note Friday. They noted that several service companies told them they are
being paid âpromptly and currentlyâ by Chesapeake.
Chesapeake Chief Executive Aubrey McClendon told The Wall Street Journal that
the company expects to end the year with $5 billion to $6 billion in cash,
enough to keep growing without tapping the capital markets.
âWe spoke with Chesapeake management following Thursdayâs 21% stock sell-off,â
wrote Jason Gammel, an equity analyst with Macquarie Research in New York, in a
note to clients Friday. âWe are satisfied following this conversation that
Chesapeake remains liquid, still generating a strong level of earnings and
cashflow and remains well within the provisions of its debt covenants.â
The difficult credit environment could make it harder for Chesapeake to raise
capital by selling assets. Chesapeake is trying to sell minority stakes in the
companyâs midstream assets and in its properties in Pennsylvaniaâs Marcellus
natural gas shale. The company also plans to sell a so-called volumetric
production payment, which entitles the purchaser to receive scheduled
quantities of natural gas from Chesapeakeâs interests in producing wells.
Chesapeake has aggressively purchased leases for millions of acres in natural
gas shale formations over the past few years, at one point planning to spend
$18 billion in 2008, more than three times the companyâs operating cash flow.
But falling natural gas prices have led the company to scale back its capital
expenditures.
Chesapeake shares were recently down $2.83, or $16, at $14.88, after falling
21% on Thursday. Shares are down 78% from their 52-week intraday high of $74
hit on July 2.
-By Christine Buurma, Dow Jones Newswires; 201-938-2061
October 10th,
It just goes to show, you don't trust these motherf**ker CEO's.
If that's the way he runs his own personal finances, How do you think about the way he runs the company??
I knew there was something fishy about all his purchases of stock earlier this year!!! This year alone he bought something like $400 million of stock on MARGIN!!!
all these fuckers are highly leveraged CHK, APA, APC
Can you say CONSOLIDATION is comming to the Energy patch!
If that's the way he runs his own personal finances, How do you think about the way he runs the company??
I knew there was something fishy about all his purchases of stock earlier this year!!! This year alone he bought something like $400 million of stock on MARGIN!!!
all these fuckers are highly leveraged CHK, APA, APC
Can you say CONSOLIDATION is comming to the Energy patch!
I'm not short CHK yet, but I find this story very interesting.
http://finance.yahoo.com/news/exclusive-chesapeake-ceo-took-1-104659547.html
Looking at CHK today it appears that there are more than a few investors using this news as a reason to exit.
editing to add link to Zero Hedge commentary:
http://www.zerohedge.com/news/visualizing-aubrey-mcclendon-rehyptohecation-scheme-and-china-trail
which includes a link to a PDF special report from Reuters:
http://graphics.thomsonreuters.com/12/04/ChesapeakeMcClendon.pdf
http://finance.yahoo.com/news/exclusive-chesapeake-ceo-took-1-104659547.html
Looking at CHK today it appears that there are more than a few investors using this news as a reason to exit.
editing to add link to Zero Hedge commentary:
http://www.zerohedge.com/news/visualizing-aubrey-mcclendon-rehyptohecation-scheme-and-china-trail
which includes a link to a PDF special report from Reuters:
http://graphics.thomsonreuters.com/12/04/ChesapeakeMcClendon.pdf
In any list of companies with miserable corporate governance, CHK has to be close to the top. McLendon is a legend in the E & P business, but he seems to lack any basic understanding of the distinction between the CHK treasury and his personal checking account.
In the aftermath of his disastrous forced sale of margined company stock in 2008, the company generously stepped up and bought a load of so-called cowboy art from him for a whopping price.
He has had this embarrassing percentage participation in every well for a long time. It's basically just a rakeoff, extra compensation for him that they avoid disclosing I guess. What in the hell is a company doing lending the CEO money against company stock that he uses to "invest" in wells the company is drilling? How exactly is this benefitting the company or its shareholders? How can it even be legal?
We may not be able to avoid subsidizing waste in the government, but there is an easy way to avoid being part of this debacle. Just say no to CHK.
In the aftermath of his disastrous forced sale of margined company stock in 2008, the company generously stepped up and bought a load of so-called cowboy art from him for a whopping price.
He has had this embarrassing percentage participation in every well for a long time. It's basically just a rakeoff, extra compensation for him that they avoid disclosing I guess. What in the hell is a company doing lending the CEO money against company stock that he uses to "invest" in wells the company is drilling? How exactly is this benefitting the company or its shareholders? How can it even be legal?
We may not be able to avoid subsidizing waste in the government, but there is an easy way to avoid being part of this debacle. Just say no to CHK.