CHK - Chesapeake Energy

[enoch01]

Btw, any recs on books about the Big E?  I've always wanted to figure out exactly how things went down there.

 

"The Smartest Guys in the Room" was a great read.

[Sea Island]

All- I have been giving some thought to who should replace Aubrey as Chairman and I would be interested in everyone's feedback. My feeling is that the announcement will be made soon and that Mason Hawkins probably had someone lined up before he went activist. So here is my short list:

 

1. One of the Tisch family(James, Jonathan or Andrew)

2. Bob Simpson: XTO founder

3. Lord John Browne: former CEO of BP: operational experience looking to get back in the game

4. David Sokol: of Berkshire; operational experience looking to get back in the game

5. Bruce A. Smith: former Tesoro CEO, current independent director of Lyondellbasell

 

[txlaw]

Btw, any recs on books about the Big E?  I've always wanted to figure out exactly how things went down there.

 

"The Smartest Guys in the Room" was a great read.

 

I've seen the movie, and I liked it, but I suspect it doesn't go as in depth as I would like.  But maybe I will check it out.

[PlanMaestro]

If this were just true. CHK needs a good operator CEO and a tough CFO to put some controls. McClendon has ran his course. He is neither of those. I hope he does not get hit with land prices before he reaches his monetizations. Lots of desperate people out there.

 

We've built an exceptional portfolio of assets during the past 7 years of what I call the great unconventional resource revolution. And from here on, it's all about exploiting these assets to the maximum benefit of the company and its shareholders. As evidence of that strategic transaction -- transition, we have greatly reduced our leasehold CapEx budget in 2013 to $500 million, from -- down from a high of $1.25 billion. And that's a level that we believe will be on the high end of our typical out-year leasehold maintenance CapEx level.

 

This is an important point and so I'd like to reiterate it. We are all set with our asset base, with the exception of the sale of the Permian and a few other minor odds and ends that we have left to sell later in '12 and in '13. Quite simply, as a result of our innovative approach to the business and hard work during the past 7 years, we now have a very focused and exceptionally high-quality asset base. In fact, we think it's the best in the industry.

 

We've now established #1 position in the Utica, Mississippi Lime, Granite Wash, Cleveland, Tonkawa, Powder River in the Niobrara, Marcellus, Haynesville and Bossier plays. In addition, we have established #2 positions in the Eagle Ford and the Barnett. No one else in the industry has assembled anything close to this scale and quality of an asset portfolio. In short, we've built a very strong foundation of 11 #1 and #2 positions in the nation's best plays.

 

And to make sure I'm crystal clear on this, we have no interest in going to Canada or anywhere else outside the U.S. With the very best asset base in the business, it's now time to transition our business from being an aggressive new play identifier, leasehold acquirer and play developer into a more deliberate but very high-quality manufacturing company that will focus on achieving exceptional returns on capital on the assets we already own.

 

......

 

I've never be more excited about the company's position in the industry, the strength of our assets and the coming improvements to our balance sheet. As a reminder, we have a total of $11.5 billion to $14 billion of asset monetizations planned for 2012, of which we've completed more than $2.5 billion to date. Throughout the year, we plan to bring in another $9.5 billion to $11.5 billion from asset monetizations including the sale of our Permian Basin assets and joint venture in the Mississippi Lime, a volumetric reduction payment in Eagle Ford shale, the sales of various noncore oil and gas assets and partial monetizations of the company's Oilfield Service and Midstream assets. We believe those actions will lower our debt by year-end 2012 to our $9.5 billion 25/25 Plan target and will fully cover our capital expenditures plan for the year

 

...

 

Moving on to liquidity. We had approximately $2.3 billion in cash availability at the end of the quarter versus $3.1 billion on December 31. I'll also note that our working capital deficit decreased from its peak level at December 31, 2011. As more of our production shifts to higher value liquids and activity levels decline this year, we expect this deficit to continue to decrease. We did enhance liquidity during the quarter with a senior notes offering that has a very advantageous feature, allowing us to call the notes at par later this year with the proceeds from asset sales. While $2 gas prices have, for sure, created headwinds for us, as evidenced in our lower operating cash flow projections for the year, we still anticipate monetizing sufficient assets to meet our 25/25 Plan. Those monetizations are moving along as planned, with good success from the Granite Wash VPP and Cleveland Tonkawa subsidiary preferred, both completed in Q1. The next significant transactions planned are in Eagle Ford VPP and Miss Lime JV and the Permian Basin sale. Further, I'll point out that upon reaching our debt paydown target at the end of the year with proceeds from these asset sales, inclusive of calling the notes issued in February, we will have a nearly undrawn revolver, which has a capacity of $4 billion.

 

....

 

We remain unhedged on the gas side and are hopeful some of the worst gas prices may be behind us. From a liquids perspective, we are 60% hedged for the remainder of 2012 at an average price of approximately $103 per barrel. I would like to mention that we removed our oil and natural gas hedges during the market swing caused by Greek debt worries early last fall. The plan was to put them both back on, but gas prices never recovered enough to do so, in large part due to the abnormally warm winter.

[txlaw]

If this were just true. CHK needs a good operator CEO and a tough CFO to put some controls. McClendon has ran his course. He is neither of those.

 

We've built an exceptional portfolio of assets during the past 7 years of what I call the great unconventional resource revolution. And from here on, it's all about exploiting these assets to the maximum benefit of the company and its shareholders. As evidence of that strategic transaction -- transition, we have greatly reduced our leasehold CapEx budget in 2013 to $500 million, from -- down from a high of $1.25 billion. And that's a level that we believe will be on the high end of our typical out-year leasehold maintenance CapEx level.

 

This is an important point and so I'd like to reiterate it. We are all set with our asset base, with the exception of the sale of the Permian and a few other minor odds and ends that we have left to sell later in '12 and in '13. Quite simply, as a result of our innovative approach to the business and hard work during the past 7 years, we now have a very focused and exceptionally high-quality asset base. In fact, we think it's the best in the industry.

 

We've now established #1 position in the Utica, Mississippi Lime, Granite Wash, Cleveland, Tonkawa, Powder River in the Niobrara, Marcellus, Haynesville and Bossier plays. In addition, we have established #2 positions in the Eagle Ford and the Barnett. No one else in the industry has assembled anything close to this scale and quality of an asset portfolio. In short, we've built a very strong foundation of 11 #1 and #2 positions in the nation's best plays.

 

And to make sure I'm crystal clear on this, we have no interest in going to Canada or anywhere else outside the U.S. With the very best asset base in the business, it's now time to transition our business from being an aggressive new play identifier, leasehold acquirer and play developer into a more deliberate but very high-quality manufacturing company that will focus on achieving exceptional returns on capital on the assets we already own.

 

Interestingly, McClendon has always been described as a landman (and a salesman). 

 

If CHK is truly in harvest mode now, is McClendon really the right person to be at the helm?

[PlanMaestro]

McClendon Used Wachovia in Personal Sale After Chesapeake

http://www.bloomberg.com/news/2012-05-03/mcclendon-used-wachovia-in-personal-sale-after-chesapeake.html

[alertmeipp]

this kind of news is getting non-sense.

[Swizzled]

Speaking of nonsense.

 

As a disgruntled shareholder and although totally unqualified I've decided to submit my name for the Chairmanship of Chesapeake Energy.  Here is my letter announcing my intentions:

 

http://www.scribd.com/doc/92310743/Hire-Devon-Shire-For-Chesapeake-Energy-Chair

 

Despite lacking in virtually every way, I figure I'm far superior to any existing Board member (excluding maybe Lou Simpson) in that

 

1. I own shares of CHK that I bought with my own money

2. I have enough common sense to know you don't buy $12 million of maps from your CEO because you can't run an oil and gas company with antique maps

 

I will accept no remuneration if elected.  I appreciate any support you could throw my way.

 

8)

[Sea Island]

Are you saying that you will reject the 40 hours or private jet time extended to each director? I will put your name on my list but who would you chose if it couldn't be you?

[JSArbitrage]

Speaking of nonsense.

 

As a disgruntled shareholder and although totally unqualified I've decided to submit my name for the Chairmanship of Chesapeake Energy.  Here is my letter announcing my intentions:

 

http://www.scribd.com/doc/92310743/Hire-Devon-Shire-For-Chesapeake-Energy-Chair

 

Despite lacking in virtually every way, I figure I'm far superior to any existing Board member (excluding maybe Lou Simpson) in that

 

1. I own shares of CHK that I bought with my own money

2. I have enough common sense to know you don't buy $12 million of maps from your CEO because you can't run an oil and gas company with antique maps

 

I will accept no remuneration if elected.  I appreciate any support you could throw my way.

 

8)

 

haha.  Not a CHK shareholder here but I like it.  You need to create a Twitter account like "NewCHKChairman" or "FakeAubrey" and post daily updates.  You'd be surprised with how much traction you might get.

[Swizzled]

"Are you saying that you will reject the 40 hours or private jet time extended to each director? I will put your name on my list but who would you chose if it couldn't be you?"

 

There is no way I'm getting on a private jet.  I have plenty of free time, so I will take the bus to the Board meetings.

 

If for some reason you can't choose me (big mistake), I'd say a distant but respectable second would be Buffett.  Him as Chairman could help bring some respectability to the Board.

 

But I think I should be first choice.

[Swizzled]

"You need to create a Twitter account like "NewCHKChairman" or "FakeAubrey" and post daily updates.  You'd be surprised with how much traction you might get."

 

Thanks for the idea.  I'll give it a try.

[txlaw]

"You need to create a Twitter account like "NewCHKChairman" or "FakeAubrey" and post daily updates.  You'd be surprised with how much traction you might get."

 

Thanks for the idea.  I'll give it a try.

 

This would be hilarious.  Do it!

[Swizzled]

So it begins:

 

@NewCHKChairman

 

I need your support.

 

Spread the word.  "Hire Shire"

[Zorrofan]

Looks like someone is getting impatient .......

 

http://finance.yahoo.com/news/southeastern-sends-letter-chesapeake-urging-175044230.html

 

Does this mean that CHK is now in play? As largest shareholder can SEAM force the board to put the company up for sale?

Things might really get  interesting.

 

cheers

Zorro

[alertmeipp]

Looks like someone is getting impatient .......

 

http://finance.yahoo.com/news/southeastern-sends-letter-chesapeake-urging-175044230.html

 

Does this mean that CHK is now in play? As largest shareholder can SEAM force the board to put the company up for sale?

Things might really get  interesting.

 

cheers

Zorro

 

We can expect interested parties to work with SAM directly.

[Sea Island]

I think the company is definately in play. The question at what price? If NAV is in the $45/share+ range, thats a $28billion transaction. Possible acquirers: CVX, they only have 3,000,000 acres of exposure onshore US so they are playing catch up to XOM.  If I were TOTAL I would certainly be interested, I can use expensive euros to buy cheap gas and the only US exposure they have is in the Utica from CHK. I have been surprised that there has not yet been a response from Aubrey.

[txlaw]

I think the company is definately in play. The question at what price? If NAV is in the $45/share+ range, thats a $28billion transaction. Possible acquirers: CVX, they only have 3,000,000 acres of exposure onshore US so they are playing catch up to XOM.  If I were TOTAL I would certainly be interested, I can use expensive euros to buy cheap gas and the only US exposure they have is in the Utica from CHK. I have been surprised that there has not yet been a response from Aubrey.

 

I was thinking the same thing in terms of who might buy CHK.  It seems that CVX should be interested, if they can get a fair price.

[PlanMaestro]

Special Report: Chesapeake's deepest well: Wall Street

http://www.reuters.com/article/2012/05/10/us-chesapeake-wallstreet-machine-idUSBRE84900620120510

 

Chesapeake's remarkable rise dates to 1989, when McClendon co-founded the company. He dispatched "land men" across America to scout out energy plays, eventually building an empire on 15 million acres of land in 16 states. It's one of the biggest property-buying sprees ever by a public company in the United States, a combined area nearly the size of West Virginia.

 

As Chesapeake sped its expansion, it needed to raise ever-larger sums to lease land and drill on it. An important tool is the volumetric production payment, or VPP, which it first used in 2007.

 

The deals allow Chesapeake to sell to trading partners future natural gas and oil production in exchange for upfront cash. Rivals have used VPPs, but Chesapeake has tapped them much more.

 

Reuters tallied 10 VPP deals by Chesapeake and two by McClendon. Chesapeake's use of VPPs has grown as rivals have moved away from them. The problem, analysts say, is that a company gives up future cash from a well. They also are a relatively expensive source of capital.

 

"It is rare for (exploration and production companies) to use VPPs as financing vehicles, especially in recent years," said Joseph Allman, a J.P. Morgan Chase & Co analyst who follows Chesapeake.

 

Technically, VPP deals don't increase a company's debt, because they are deemed to be asset sales. But some analysts say VPPs are controversial because they effectively move future obligations to opaque off-balance sheet structures. Once a well is moved off the books, it can be difficult for investors to track production.

 

Broadly, investors frown on off-balance-sheet activity because it is much more difficult to monitor the use of money. Murky vehicles were a major factor in the accounting scandals involving Enron and others a decade ago.

 

Among McClendon's advisers on these deals are Jefferies & Co. and its vice chairman, Ralph Eads III. Both were members of the Sigma Alpha Epsilon fraternity at Duke, are big donors to the North Carolina university, and share a love of expensive French wine. Jefferies' connections extend into Chesapeake's corporate suite. McClendon has credited his CFO, Domenic Dell'Oso, a former Jefferies banker, for forming the "industry-leading VPP program."

[alertmeipp]

CHK has been using VPP for quite sometimes... Why the media keeps digging old news on CHK these days.

[PlanMaestro]

non-timely 10Q

[Grenville]

non-timely 10Q

 

I hope the Southeastern folks have a plan.

 

From the Q:

 

As part of our asset monetization planning and capital expenditure budgeting process, we closely monitor the resulting effects on the amounts and timing of our sources and uses of funds, particularly as they affect our ability to maintain compliance with the financial covenants of our corporate revolving bank credit facility. While asset monetizations enhance our liquidity, sales of producing natural gas and oil properties adversely affect the amount of cash flow we generate and reduce the amount and value of collateral available to secure our obligations, both of which are exacerbated by low natural gas prices. Thus the assets we select and schedule for monetization, our budgeted capital expenditures and our commodity price forecasts are carefully considered as we project our future ability to comply with the requirements of our corporate credit facility. As a result, we may delay one or more of our currently planned asset monetizations, or select other assets for monetization, in order to maintain our compliance. Continued compliance, however, is subject to all the risks that may impact our business strategy.

[txlaw]

non-timely 10Q

 

I hope the Southeastern folks have a plan.

 

From the Q:

 

As part of our asset monetization planning and capital expenditure budgeting process, we closely monitor the resulting effects on the amounts and timing of our sources and uses of funds, particularly as they affect our ability to maintain compliance with the financial covenants of our corporate revolving bank credit facility. While asset monetizations enhance our liquidity, sales of producing natural gas and oil properties adversely affect the amount of cash flow we generate and reduce the amount and value of collateral available to secure our obligations, both of which are exacerbated by low natural gas prices. Thus the assets we select and schedule for monetization, our budgeted capital expenditures and our commodity price forecasts are carefully considered as we project our future ability to comply with the requirements of our corporate credit facility. As a result, we may delay one or more of our currently planned asset monetizations, or select other assets for monetization, in order to maintain our compliance. Continued compliance, however, is subject to all the risks that may impact our business strategy.

 

Have not had a chance to look at any of this.  How is it that they filed a notice of non-timely 10-Q and then filed a 10-Q?

[PlanMaestro]

http://finance.yahoo.com/news/chesapeake-energy-corporation-enhances-financial-231900259.html

 

Chesapeake Energy announced it has entered into a $3.0 billion unsecured loan from Goldman Sachs Bank USA and affiliates of Jefferies Group, Inc. The net proceeds of the loan, after payment of customary fees and original issue discount (if any), will be utilized to repay borrowings under the company’s existing corporate revolving credit facility.

 

The new facility, which ranks pari passu to Chesapeake’s outstanding senior notes, matures on December 2, 2017 and may be repaid at any time this year without penalty at par value and carries an initial variable annual interest rate through December 31, 2012 of LIBOR plus 7.0%, which is currently 8.5%, given the 1.5% LIBOR floor in the loan agreement. During the remainder of the year, Chesapeake plans to complete asset sales totaling $9.0-$11.5 billion and intends to use a portion of the proceeds from these asset sales to repay the loan. Chesapeake has received strong interest from prospective buyers of its Permian Basin asset sales process and its Mississippi Lime joint venture process, and the company expects to complete these two transactions in the 2012 third quarter.

[Grenville]

Have not had a chance to look at any of this.  How is it that they filed a notice of non-timely 10-Q and then filed a 10-Q?

 

Although not the best source of info, the explanation at zero hedge makes sense for the release of the 10Q: pressure on the stock price.

http://www.zerohedge.com/news/chesapeake-plays-chicken-market-plunges-blinks-plunges-some-more