CHK - Chesapeake Energy

[Grenville]

First, CHK's response to Ichan's letter..

 

http://www.chk.com/News/Articles/Pages/1700014.aspx

 

cheers

Zorro

 

Thanks for posting CHK's response. They don't post them on the SEC site which I have a RSS feed for. It will be interesting to see if Icahn is able to get the new board members on before the election of a new chairman. I like that he tried the friendly route via dinner.

[Evolveus]

Recent Bloomberg article (sorry no link).  Takeover rumors swirl, Joint ventures convolute the process...Nothing terribly new here.  Some folks were putting a mid 20's price tag on a buyout if it were to happen, but we'll let the market decide that.

 

The article:

Chesapeake Valuation Seen Luring Major Oil Merger Deal: Real M&A

 

Chesapeake Energy Corp. (CHK)’s depressed valuation is making the company a potential target for acquirers willing to bet that natural-gas prices will rebound from a decade low.

 

Chesapeake’s equity and net debt are valued at $9.19 for each barrel of oil equivalent, the lowest among U.S. oil and gas explorers with market capitalizations greater than $5 billion, according to data compiled by Bloomberg. While a stock purchase by Carl Icahn helped the $11 billion company’s shares rebound in the past week, Chesapeake is still down 27 percent in 2012 amid investigations into Chief Executive Officer Aubrey McClendon’s personal loans backed by stakes in company-operated wells.

 

The second-largest U.S. natural-gas producer said it may face a cash shortfall as early as next year after prices for natural gas, which accounts for 83 percent of its reserves, reached a 10-year low last month. While a buyer would have to cope with seven joint ventures and $13.1 billion of debt, Exxon (XOM) Mobil Corp. and Chevron Corp. (CVX) may see a chance to scoop up the largest holder of onshore drilling leases before gas prices rebound, said SunTrust Robinson Humphrey Inc. Royal Dutch Shell Plc (RDSA) may also be interested, said Huntington Asset Advisors Inc.

 

“For any of the major integrated oil companies that want to pick up reserves on the cheap, this would be a good one,” said Peter Sorrentino, who helps oversee $14.7 billion at Huntington in Cincinnati. Chesapeake and other gas producers will be “worth a whole lot more than they are today. We’ll look back on this and say, ‘Wow, this was really an opportunity.’ There may be some people that end up kicking themselves.”

 

Chesapeake “had a bit of a drama around it,” he said. “But that doesn’t change the fact that these are very desirable assets.”

 

Exxon, Shell

 

Michael Kehs, a spokesman for Oklahoma City-based Chesapeake, declined to comment on whether the company is for sale, may be for sale or has been in talks with potential buyers of the whole company.

 

Kimberly Brasington, a spokeswoman for Irving, Texas-based Exxon, and Russell Johnson, a spokesman for San Ramon, California-based Chevron, declined to comment on potential acquisitions. Jonathan French, a spokesman for Shell in London, declined to comment on whether The Hague-based company has considered an acquisition of Chesapeake.

 

“We are happy with the portfolio we have acquired and built organically in North America over the past years, but we are always looking at opportunities worldwide,” French said, when asked if Shell is looking to add resources on the continent.

 

Personal Loans

 

McClendon, 52, co-founded Chesapeake in 1989 and built it into the second-largest U.S. natural-gas producer behind Exxon by embracing techniques such as horizontal drilling and hydraulic fracturing that revived U.S. oil and natural-gas production. The company has outspent cash flow in 19 of the past 21 years as it amassed a portfolio of gas and oil fields.

 

McClendon, who was allowed to take a 2.5 percent stake in almost every well the company drilled and was required to pay development costs proportionate to his stake, had amassed $846 million in loans as of Dec. 31 to cover his share of the costs. The board announced May 1 that it will strip McClendon of his chairmanship as it reviews his personal loans. The Internal Revenue Service and Securities and Exchange Commission are also investigating.

 

The decline in gas prices, coupled with McClendon’s personal-loan entanglements, led to a 47 percent drop in Chesapeake’s shares in the last 12 months. Natural gas, the fuel for heating and power plants, fell to a 10-year low of $1.902 per million British thermal units on April 19 because of a glut of production from new wells in shale formations from Texas to Pennsylvania.

 

Cash Shortfall

 

On May 1, the company posted an unexpected $71 million first-quarter loss and warned it may run short of cash next year without enough divestitures. Chesapeake increased planned asset sales through the end of 2013 by 17 percent to $20.5 billion.

 

“The knee jerk reaction is the stock is down so much, it’s a real opportunity, but unless they’re able to sell these assets and get good prices for these assets, the debt burden is choking them,” Tim Ghriskey, who oversees about $2 billion as chief investment officer of Solaris Group in Bedford Hills, New York, said in a phone interview. “This has always been a bit of a higher risk name.”

 

Chesapeake’s depressed valuation may still be enough to entice a buyer, said Neal Dingmann, a Houston-based analyst at SunTrust.

 

‘Cheap Enough’

 

Chesapeake’s enterprise value, which is the sum of its equity, net debt, minority interest and preferred equity, is almost $29 billion, 9.2 times the value of its proved reserves. That’s the cheapest among U.S. oil explorers and producers and integrated oil companies with market values higher than $5 billion, data compiled by Bloomberg show. The industry is valued at a median of about 15.5 times. Chesapeake held proved reserves equivalent to 3.13 billion barrels of oil at the end of 2011.

 

“There are a lot of people that talk about Chesapeake and say it’s too convoluted and too complicated to have somebody buy it out,” Dingmann said in a phone interview. “But if assets are cheap enough, buyers are going to find a way to get through all these issues.”

 

Chesapeake’s largest investor, Southeastern Asset Management Inc., said in a May 7 letter to the board that the company should be open to takeover offers that aren’t “lowball” bids relative to its net asset value.

 

Icahn’s Investment

 

“We also don’t want to use this large price-to-value gap as an excuse to refuse discussions with any potential acquirers who would be willing to pay a price today that recognizes the longer term value of the company,” Southeastern Chairman and CEO Mason Hawkins said in the letter.

 

Hawkins, who is based in Memphis, Tennessee, didn’t return a phone call seeking comment.

 

Icahn, who is known for pushing for change at the companies in which he invests, last week disclosed that he purchased a 7.56 percent stake in Chesapeake. Icahn, 76, called for at least four of the nine directors to be replaced.

 

Susan Gordon, a spokeswoman for Icahn, didn’t respond to an e-mail asking if he will push for Chesapeake to consider a sale.

 

“The company is definitely vulnerable to a takeover given where it is now,” Andre Cillie, managing partner at Fountainhead Partners Fund, said in a phone interview from Cape Town. Chesapeake is Fountainhead’s second-largest investment. “The possibility must be there, especially given the fact that Carl Icahn has gone activist against the company and has a large shareholding.”

 

Gas Prices

 

A purchase of Chesapeake, which holds reserves vast enough to satisfy more than three years of U.S. household demand, may be a bet on higher gas prices. Gas prices have rallied 28 percent since the low point on April 19, still leaving the commodity about 85 percent below its 2005 peak.

 

“Natural gas has shown signs of bottoming,” Huntington’s Sorrentino said in a phone interview.

 

Natural gas for June delivery closed at $2.429 a million British thermal units yesterday in New York. Commodity traders don’t expect gas to reach $3.50 a million British thermal units until November 2013 and $4 until December 2014, based on New York Mercantile Exchange futures contracts.

 

Exxon, the world’s biggest energy company with a market value of $383 billion, and Chevron, the second-largest U.S. oil company, “desperately need” to boost production and may look to acquire Chesapeake, said SunTrust’s Dingmann. Chevron’s year- over-year oil and gas production has declined for five straight quarters, while Exxon’s was down in the last three quarters, data compiled by Bloomberg show. Each has about $19 billion in cash and short-term investments.

 

Exxon, Chevron

 

“For somebody like an Exxon or Chevron, where they just don’t have much in the way of production growth right now, the easiest way to get that is to go out and acquire it,” Dingmann said. “Both are sitting on billions of dollars of cash right now that’s really not doing anything.”

 

Exxon surpassed Chesapeake as the largest U.S. natural-gas producer with its 2010 acquisition of XTO Energy Inc.

 

Phil Adams, a Chicago-based debt analyst at Gimme Credit LLC, said Exxon tops his list of likely acquirers because it’s the largest potential suitor and has the highest corporate credit ratings. Chevron, rated the second rung of investment grade by Moody’s Investors Service, is also among companies capable of paying cash for Chesapeake without damaging its debt rating, he said.

 

Takeover Price

 

Shell, Europe’s biggest oil company, may also be interested in buying Chesapeake to reduce its exposure to regions with higher political risks, said Huntington’s Sorrentino. All of Chesapeake’s sales are generated in the U.S., while about 32 percent of Shell’s $470 billion in revenue last year came from areas including Africa and Asia, according to its annual report.

 

“If you want to try to clean up and eliminate some of your political and geographic risk, these would be nice assets,” Sorrentino said. “There’s nothing here that’s terribly risky.”

 

“We have more than 40 trillion cubic feet of gas in the U.S. and Canada and we bought that quite efficiently, so we have plenty on our plate,” Shell CEO Peter Voser said in an interview in Calgary yesterday when asked if his company is interested in buying all or part of Chesapeake.

 

Sorrentino said a buyer could pay about $20 a share, while SunTrust’s Dingmann estimates Chesapeake could fetch a takeover price in the “mid to high $20” range, or as much as a 77 percent premium to Chesapeake’s closing price of $16.35 yesterday. The stock reached a record of $69.40 in 2008 and closed as high as $35.61 last year.

 

Joint Ventures

 

An acquirer would have to take on Chesapeake’s seven joint ventures and $13.1 billion in debt, surmount the board’s takeover defenses and convince McClendon to sell. Chesapeake is protected by an Oklahoma law that prevents a shareholder from engaging in a “business combination” without approval by the board of directors or two-thirds of the other shareholders, according to company filings. The law makes an exception if the investor owns 85 percent of the company’s stock.

 

“I don’t believe they’re an attractive target,” Tim Rezvan, a New York-based analyst at Sterne Agee & Leach Inc., said in a phone interview. “There are too many joint ventures and too much uncertainty about all those moving parts. Anyone looking to make an acquisition can find a lot cleaner assets out there.”

 

A takeover may still be a bargain for any buyer that agrees with McClendon’s valuation estimates. In a March interview, McClendon said the Permian Basin accounts for 5 percent of the company’s value and divesting holdings there will generate at least $5 billion, implying that Chesapeake as a whole could be valued at $100 billion. That’s more than nine times its current market value.

 

“If one is willing to look past the near-term volatility, given the plunge in natural-gas prices and the management turmoil, I do think Chesapeake will rebound and is certainly a valuable company,” Todd Smurl, president and chief investment officer of Houston-based Ascendant Advisors LLC, where he manages the Ascendant Natural Resources Fund (NRGCX), said in a phone interview. “Definitely the attraction to an acquirer would be the assets that they own.”

 

To contact the reporters on this story: Tara Lachapelle in New York at tlachapelle@bloomberg.net; Jim Polson in New York at jpolson@bloomberg.net; Joe Carroll in Chicago at jcarroll8@bloomberg.net.

 

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Susan Warren at +1-214-954-9455 or susanwarren@bloomberg.net.

 

Find out more about Bloomberg for iPhone: http://m.bloomberg.com/iphone/

 

 

 

[Myth465]

This has been my issue with CHK.

 

 

“I don’t believe they’re an attractive target,” Tim Rezvan, a New York-based analyst at Sterne Agee & Leach Inc., said in a phone interview. “There are too many joint ventures and too much uncertainty about all those moving parts. Anyone looking to make an acquisition can find a lot cleaner assets out there.”

 

 

I find the structure far too complex. Easier to buy something with just acreage and no JVs / other complex structures.

[Sea Island]

For those who believe that CHK is too complicated for the like of Chevron, ExxonMobil, Total etc. to acquire, spend some time looking at their various projects around the world. The notion that one of these integrateds couldn't get their arms around CHK is sophomoric.

 

http://www.chevron.com/annualreport/2011/BusinessHighlights/upstream/

[Myth465]

They could all get there arms around CHK operationally. Hell I could, you could, CHK can. CHK operates well, they just dont have capital.

 

But buying CHK outright, is really buying into 8 JVs, and 3-5 publicly traded entities (With 1 or 2 more spinouts on the way). You also have all the Preferred structured deals (Utica), and VPP presold gas contracts, the trusts, and the founders well program (which is great press for any major). There are easier ways to buy acreage without taking on all that. The entire oil patch is cheap right now....

 

I see the majors buying million acre plays out right from CHK not taking over the entire structure and dealing with that accounting nightmare. Could they do it, yes, would they want to, I dont think so. Perhaps I am sophomoric though, but just draw me a flow chart of CHK's entities, obligations, and liabilities....

 

Give me the Permian or the Miss outright instead, leave the rest for Icahn. Him and Longleaf will make you pay up anyway.

[cayale]

They could all get there arms around CHK operationally. Hell I could, you could, CHK can. CHK operates well, they just dont have capital.

 

But buying CHK outright, is really buying into 8 JVs, and 3-5 publicly traded entities (With 1 or 2 more spinouts on the way). You also have all the Preferred structured deals (Utica), and VPP presold gas contracts, the trusts, and the founders well program (which is great press for any major). There are easier ways to buy acreage without taking on all that. The entire oil patch is cheap right now....

 

I see the majors buying million acre plays out right from CHK not taking over the entire structure and dealing with that accounting nightmare. Could they do it, yes, would they want to, I dont think so. Perhaps I am sophomoric though, but just draw me a flow chart of CHK's entities, obligations, and liabilities....

 

Give me the Permian or the Miss outright instead, leave the rest for Icahn. Him and Longleaf will make you pay up anyway.

 

Nailed it, Myth.  It will be interesting to see how this plays out, but I agree that nobody is going to buy it outright.

[T-bone1]

Myth,

 

CHK is a complicated company, but it really isn't difficult for anyone on this board to draw a flowchart of the obligations . . .

 

you can split the company into the following divisions: Marcellus shale, Utica Shale, Haynesville shale, Barnett shale, Mississippian Carbonate play,

Cleveland & Tonkawa plays, Granite wash, Permian Basin, Powder River Basin Niobrara, Service/Drilling Company, Midstream Company, and then a few minority owned entities (Gastar, Chaparral, FracTech, CHKR, CHKM) . . .

 

This might seem like a lot of divisions, but it is no different than any other super independant like Anadarko or Devon, both of which have joint ventures in a large number of plays (and almost every major deepwater discovery is a joint venture to mitigate risk).  To look at CHK's "divisions" in order:

 

Marcellus: CHK sold a 1/3 JV interest to statoil.  The carried interest (the remaining cash Statoil has to pay for CHK's drilling) should be exhausted this year.  CHK accounts for the 2/3 they own on a "net" basis - so it basically doesn't matter that they have a JV.  They only claim ownership of the amount they retained.

 

Utica: in the "wet gas portion" (roughly 1/3 of their acreage) CHK did a JV with Total (total got 25% of this portion, or roughly 8.5% of the total acreage).  The drilling carry will be paid over the next three years.  The remaining acreage is unencumbered.  They also sold a preferred interest in CHKU which overlaps the area of the Total JV.  If you want to consider this debt, it is 10% debt and can be accounted for accordingly.  If you want to consider it a preferred, it is a 7% preferred and the Total JV will take care of all of the drilling requirements.  They also gave up a 3% overriding royalty (ORRI) on the first 10k or so wells, but since they had a higher royalty in this play to begin with that is a wash.

 

In the Haynesville they have a JV with PXP, where PXP recieved a 20% interest.  The carry has been paid and CHK accounts for what they still own on a net basis.

 

In the Barnett, CHK sold a 25% JV interest to Total, the carry for which has been paid.  On it's remaining net acreage position, CHK sold a $1.1 billion VPP, where they sold reserves and production and took them off their books (like selling a royalty trust).  because they still have to operate the wells producing these reserves, it raised their overall lease operating expense (LOE or lifting cost) in this basin.

 

This Mississippian they own outright, but will do a JV this year. 

 

In the Cleveland and Tonkawa plays, CHK sold a preferred interest like the one in the Utica.  This is one of their highest rate of return oil plays and they have a high working interest, so it is similar to the above preferred in the Utica.

 

In the Granite Wash, CHK has sold a royalty trust called CHKR.  They sold producing wells and will drill further wells, this is like a VPP and basically brings future revenues forward at a 10% discount rate in order to drill wells with a 50-70% IRR

 

In the Permian Basin, CHK owns it outright with no JVs or VPPs

 

In the Powder River Basin Niobrara (CHK/Cnooc are selling their DJ Basin Niobrara), CHK sold a 33% working interest to CNOOC, the drilling carry should be paid off by the end of the year.  Despite the JV, CHK and CNOOC are wisely selling the southern part of the play, which needs a lot of exploration and seismic to find naturally fractured areas.

 

The Service/Drilling company is a competitive advantage for CHK, both in efficiency and to avoid cost inflation.  They may give up some of this competitive advantage by promising a certain gross margin to their services businesses in order to take them public, but they will still own most of them, so this would really be cheap financing and an accounting construct.  This business has its own revolver and assets with a book value of $4 billion as I recall.

 

The midstream business is the wholly owned gathering/compression/and treatment systems in their fields.  When these systems mature, they sell them into CHKM - a partially owned publicly traded yield vehicle.  CHK promises a certain rate of return to these assets for a set amount of time when they sell them.  This is currently costing them money in the Haynesville and Barnett - where they don't want to produce as much gas as was planned due to the low prices this year, but this is a minor cost (tens of millions).  This business has its own revolver and assets worth $1.7 billion.

 

The minority owned entities are either public or for sale and are or will be easy to value.

 

It is important to realize that each 640 acre drilling unit has multiple landowners with multiple leases at different rates all pooled together.  This type of accounting has always been a little complex looking but ultimately pretty simple (if bob has a 20% royalty on 64 acres, he gets a royalty on 2% of the 640 acre unit . . .).  The fact that the founders well program has a 2.5% working interest, or a JV partner takes over 1/3 of CHK's working interest doesn't really change anything.

 

(For what it is worth, CHK had a JV with BP int he Fayetteville as well as a VPP sold there, as well as Aubrey and Tom's founders' well interest, and they had no problem selling that to BHP for $4.75 billion.  They did the same thing with the Woodford shale before that).

 

 

I wouldn't say this company is simple, but I was able to explain the entire thing in 20 minutes using one page or so.  All of this stuff is pretty standard in the onshore exploration world (in the offshore world it looks different because there no landowners, but its basically still a JV structure).  This company is nowhere near as complex as FFH, RIMM, any bank, or almost any real estate vehicle.  The "complexity" would not be an impediment to any acquirer and all of the majors are used to working together and having joint ventures.  CHK is the operator of all of these plays, so an acquirer wouldn't have to deal with any of the JV partners.  Once the carries are paid (and they will almost all be done by this year), it is as if CHK just had less acreage to start with.  The biggest complexity is probably the asset level preferred interests in the Utica and Cleveland Tonkawa - but an acquirer could just treat these like 10% debt and pay them off if they were concerned about them. 

 

 

[T-bone1]

As a follow-up/simplification:

 

Once the cash and drilling carries for a JV are paid, its like CHK just had less acreage than they started with.  They are the operator and make all the decisions and its effectively like they never did a JV.  (they do have a requirement to maintain a certain amount of acreage, but the carries ensure they hold enough leases by production (HBP) to take care of this).  Acreage in a play always overlaps with other operators anyways, so APC or anyone else might own part of the drilling units to.  You can basically ignore the JV's (unless you think the majors can't pay).

 

If you wanted to set up a seperate company to pay off the asset level preferred shares ($2.5 billion total . . . plus another $500 million in make whole premium), the PV10 of the future liability to operate VPP production (moving this off CHK's books will lower their overall operating costs) for about $900 million, and get them out of any non-advantagious pipe-line or midstream deals (probably $150 million, but call it $600), you get a total of about $4.5 billion.  This would effectively remove all of the complexity (and some of the liabilites). 

 

So if you want to value CHK as a "clean company" - which I think is worth about quadruple the current price - and then subtract $4.5 billion ($5.81 per share), I don't see what the problem is.  CVX could buy the company for $40 billion ($35 per share) and then either ignore these minor issues or pay a few billion to make them go away.

[WarrenWatsa]

Chesapeake Energy Corp., the U.S. energy explorer battered by collapsing natural-gas prices and growing investor mistrust, will replace almost half its board under pressure from billionaire investor Carl Icahn.

 

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/06/04/bloomberg_articlesM53EXO6K50XS01-M53MX.DTL#ixzz1wqbUz63p

 

:)

 

Icahn making good...

[onyx1]

I just opened the latest Oustanding Investor Digest and it looks like 3/4 of this issue is dedicated to CHK, including a long interview with McClendon and a thesis from both Morris Snyder Management and Longleaf. 

[tooskinneejs]

Long, detailed article from Reuters investigating Aubrey's lifestyle and how it intertwines with CHK...

 

http://www.reuters.com/article/2012/06/07/us-chesapeake-mcclendon-profile-idUSBRE8560IB20120607

 

 

[roundball100]

Long, detailed article from Reuters investigating Aubrey's lifestyle and how it intertwines with CHK...

 

http://www.reuters.com/article/2012/06/07/us-chesapeake-mcclendon-profile-idUSBRE8560IB20120607

Not a very encouraging story in terms of putting the shareholder first.

[oddballstocks]

Long, detailed article from Reuters investigating Aubrey's lifestyle and how it intertwines with CHK...

 

http://www.reuters.com/article/2012/06/07/us-chesapeake-mcclendon-profile-idUSBRE8560IB20120607

Not a very encouraging story in terms of putting the shareholder first.

 

I've never looked at CHK but I wanted to thank you for posting this link.  It's very interesting, it seems that if one digs through the weeds there could be some real value in CHK, or it could be another Enron.  A situation where research makes the difference.

 

I also wanted to say I really appreciate this type of journalism.  We need more journalists who are willing to write these long form investigative reports.  Even if you don't agree with what they wrote these are the sorts of things I've always felt the media was around to expose.

[txlaw]

Long, detailed article from Reuters investigating Aubrey's lifestyle and how it intertwines with CHK...

 

http://www.reuters.com/article/2012/06/07/us-chesapeake-mcclendon-profile-idUSBRE8560IB20120607

Not a very encouraging story in terms of putting the shareholder first.

 

I've never looked at CHK but I wanted to thank you for posting this link.  It's very interesting, it seems that if one digs through the weeds there could be some real value in CHK, or it could be another Enron.  A situation where research makes the difference.

 

I also wanted to say I really appreciate this type of journalism.  We need more journalists who are willing to write these long form investigative reports.  Even if you don't agree with what they wrote these are the sorts of things I've always felt the media was around to expose.

 

This is not another Enron.  Instead, it's a classic case of the imperial CEO who runs the company as a personal fiefdom.

 

Anyone who has been following the CHK saga over the years ought to know that McClendon has treated the company as his own.  So it should not surprise anyone that this stuff has occurred.  Indeed, CHK is an interesting case because, in some sense, CHK sort of is Aubrey McClendon and vice versa, even though it is a public company. 

 

Finally, public company shareholders are taking the reins.  This is actually cause for optimism.

[actuary]

http://finance.yahoo.com/news/chesapeake-energy-corporation-announces-plan-115400482.html

 

Looks like a step in the right direction

[txlaw]

CNBC video about annual meeting:

http://video.cnbc.com/gallery/?video=3000095082

 

Sort of disturbing to see David Dreman come on CNBC and say that details about McClendon's stakes in CHK wells pursuant to the FWPP has just come out.  He also said he wouldn't buy any more stock at this point, which is, of course, the exact opposite of what I think most people ought to be doing at this time given the changes that are occurring.

 

 

[txlaw]

So what do people think?  Should Aubrey go or no?

 

I suggested earlier on the thread that perhaps McClendon should be replaced with someone who would be better suited for harvesting the fruits of the company's labor.  But after reading the last CC, I kinda think McClendon should stay at the helm, especially now that the board is going to be substantially reconstituted.

 

But I'd be interested in hearing what everyone else thinks.

[alertmeipp]

no, at least not until all those deals are in place.

[PlanMaestro]

So what do people think?  Should Aubrey go or no?

 

I suggested earlier on the thread that perhaps McClendon should be replaced with someone who would be better suited for harvesting the fruits of the company's labor.  But after reading the last CC, I kinda think McClendon should stay at the helm, especially now that the board is going to be substantially reconstituted.

 

But I'd be interested in hearing what everyone else thinks.

 

I am more in the camp that there will not be better opportunity to get rid of him than now.

 

The man has been a force for good and he will be remembered as one of the greats in the industry. But he has outlived his usefulness for CHK and its shareholders and his sense of entitlement is truly dangerous.

 

I know few founders that leave their companies gracefully to better stewards. Therefore, when you have the chance to get rid of a founder with a grandiose view of himself ... you take it.

[tooskinneejs]

After reading that latest Reuter's story, I couldn't help but think Tyco, Tyco, Tyco all over again.  Having olympic rowers on the company payroll?  Seriously?  That's how respectful he is of shareholders' money?  And the sad thing is is that the facts uncovered in the Reuter's story probably aren't the half of it.  You know, the seldom just one cockroach in the kitchen theory.

[nkp007]

Long, detailed article from Reuters investigating Aubrey's lifestyle and how it intertwines with CHK...

 

http://www.reuters.com/article/2012/06/07/us-chesapeake-mcclendon-profile-idUSBRE8560IB20120607

 

Wow - any sort of value in $CHK is irrelevant to me as long as this guy is in charge. After reading OID, I was on the fence about the investment. But seeing how it's run as a personal piggy bank, I don't see why he couldn't find a way to leverage the company to its demise.

 

It looks like he is on that path with his personal fortune. Mortgage, buy more. Mortgage, buy more. Repeat until explosion.

[txlaw]

The man has been a force for good and he will be remembered as one of the greats in the industry. But he has outlived his usefulness for CHK and its shareholders and his sense of entitlement is truly dangerous.

 

You may be right about this, Plan. 

 

I keep going back and forth on whether or not to keep him.  On the one hand, nobody can promote and do deals like McClendon, so we kind of need him to work his butt off to get these asset sales done at the best possible prices for CHK shareholders.  On the other hand, if he pulls this off without having to sell the entire company, then we're left with a CEO who isn't necessarily useful for harvest mode and that may be hard to keep from getting into trouble.

 

Probably the best thing for McClendon to do for CHK shareholders would be to tell the market that he will: (1) shepherd CHK through the necessary asset sales and shift from mostly dry gas to wet gas, and (2) step down to be replaced with an outside CEO once the harvest era begins. 

 

Then maybe McClendon could  concentrate on some other nat gas related ventures that would benefit CHK and the industry.  Or he could be an industry spokesperson or lobbyist in DC or abroad.  We have to give him some way to redeem himself because I think he might be game for trying to do so.

[mcliu]

Do you guys think whether or not McClendon stays will have an impact on the investment thesis? How much would it affect the value of the business whether McClendon stays or not?

 

If he stays:

- Pull off some excellent asset sale deals (+value)

- Continue to run CHK as a family business (-value)

- May or may not continue to be a visionary in a new production business?

 

If he leaves:

- Someone else pull off pretty decent asset sales (relatively -value)

- Possibly better management going forward

- Possibly lose a visionary?

 

How would you quantify this? Would the impact be big enough either way to change the investment thesis?

[Sea Island]

I think short term Aubrey's departure would be seen as a positive and also signal that the company would be broken up or sold outright. But how can Aubrey survive? Does anyone with a working knowledge of management lead buyouts believe that Aubrey could save his job and company by teaming up with private equity to take the company private at lets say $35 per share?

[nkp007]

The man has been a force for good and he will be remembered as one of the greats in the industry. But he has outlived his usefulness for CHK and its shareholders and his sense of entitlement is truly dangerous.

 

You may be right about this, Plan. 

 

I keep going back and forth on whether or not to keep him.  On the one hand, nobody can promote and do deals like McClendon, so we kind of need him to work his butt off to get these asset sales done at the best possible prices for CHK shareholders.  On the other hand, if he pulls this off without having to sell the entire company, then we're left with a CEO who isn't necessarily useful for harvest mode and that may be hard to keep from getting into trouble.

 

Probably the best thing for McClendon to do for CHK shareholders would be to tell the market that he will: (1) shepherd CHK through the necessary asset sales and shift from mostly dry gas to wet gas, and (2) step down to be replaced with an outside CEO once the harvest era begins. 

 

Then maybe McClendon could  concentrate on some other nat gas related ventures that would benefit CHK and the industry.  Or he could be an industry spokesperson or lobbyist in DC or abroad.  We have to give him some way to redeem himself because I think he might be game for trying to do so.

 

From what I see, I don't know if he thinks about things in terms of redeeming himself.