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CHK - Chesapeake Energy

bmichaud

By bmichaud
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txlaw Newbie

txlaw

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CHK reports:

http://www.chk.com/news/articles/Pages/1787352.aspx

 

And the new CEO is expected to start as soon as McClendon leaves:

http://newsok.com/chesapeake-energy-to-hire-new-ceo-by-april-1/article/3757632

 

That was quick.

 

Nice looking report. Hedged most of 2013 production at good prices. Paying down debt. Getting cleaner.

 

Nice to hear.  Haven't looked at it yet, but I did see the blurbs on how they have been hedging most of their oil production and have hedged 50% of their nat gas production.

 

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fareastwarriors Newbie

fareastwarriors

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Chesapeake Plays it Safe.

 

If anyone harbored doubts that Chesapeake Energy is no longer Aubrey McClendon’s company, Thursday’s results announcement should help dispel them. Having presided over 80 conference calls, the outgoing CEO sat this one out.

 

Signs of change didn’t end there, though. Chesapeake also said it has hedged 50% of its projected natural gas production for 2013 at an average price of $3.62 per thousand cubic feet, slightly above the current price. This time last year, it hadn’t hedged any of its gas for 2012 – and was subsequently clobbered as prices tanked.

 

Mr. McClendon was usually bullish on a gas-price recovery. So the fact that Chesapeake has chosen to forgo some potential gains by hedging so much raises the question of whether the company’s optimism has dimmed.

 

That may be part of it. But as Chesapeake is still dealing with the high debt load it took on under Mr. McClendon, it is more likely trying to take some of the risk out of its cash flow. After all, gas made up 77% of Chesapeake’s output in the fourth quarter but just 38% of revenue. No point just running on vapors.

 

WSJ.

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muscleman Newbie

muscleman

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CHK reports:

http://www.chk.com/news/articles/Pages/1787352.aspx

 

And the new CEO is expected to start as soon as McClendon leaves:

http://newsok.com/chesapeake-energy-to-hire-new-ceo-by-april-1/article/3757632

 

That was quick.

 

Nice looking report. Hedged most of 2013 production at good prices. Paying down debt. Getting cleaner.

 

Nice to hear.  Haven't looked at it yet, but I did see the blurbs on how they have been hedging most of their oil production and have hedged 50% of their nat gas production.

 

 

Looks very good. I tried to value CHK against other nat gas producers. Others like XCO and UPL have about 4 times Enterprise value/Revenue, but CHK has only 2.7, despite CHK having oil production that ramps up quickly. I think CHK is indeed the cheapest nat gas producer that has a decent oil production to limit the downside.

Is this the best way to value CHK? Or does XCO have much higher gas reserves?

 

 

The other question I have is with 1.1 Bn operating cash flow per quarter, I don't see why there is still a funding gap that requires asset sales.

They have 4.4 Bn cash this year to spend to ramp up their oil fields. Is that not enough?

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nkp007 Newbie

nkp007

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Chesapeake Plays it Safe.

 

If anyone harbored doubts that Chesapeake Energy is no longer Aubrey McClendon’s company, Thursday’s results announcement should help dispel them. Having presided over 80 conference calls, the outgoing CEO sat this one out.

 

Signs of change didn’t end there, though. Chesapeake also said it has hedged 50% of its projected natural gas production for 2013 at an average price of $3.62 per thousand cubic feet, slightly above the current price. This time last year, it hadn’t hedged any of its gas for 2012 – and was subsequently clobbered as prices tanked.

 

Mr. McClendon was usually bullish on a gas-price recovery. So the fact that Chesapeake has chosen to forgo some potential gains by hedging so much raises the question of whether the company’s optimism has dimmed.

 

That may be part of it. But as Chesapeake is still dealing with the high debt load it took on under Mr. McClendon, it is more likely trying to take some of the risk out of its cash flow. After all, gas made up 77% of Chesapeake’s output in the fourth quarter but just 38% of revenue. No point just running on vapors.

 

WSJ.

 

The culture at the top has definitely changed. I think Chesapeake is an asymmetric investment where you get to partner with some great investors who are active in the operations of the company.

 

In addition, although I generally avoid commodities, I think you're buying a lot of producing assets at trough levels.

 

 

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muscleman Newbie

muscleman

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http://www.bloomberg.com/news/2013-02-25/sinopec-to-buy-chesapeake-oil-and-gas-assets-for-1-02-billion.html

 

I think if they need to get funding like this and raise $4 bn in asset sales, that would leak about $8 bn in NAV, which is about 14-15 per share.

According to LongLeaf, if the NAV is $51 given $4.5 gas and $75 oil, then it is $38 now.

I think it is still an attractive investment, especially if the gas price goes up to $8 in 5 years. In the short term we may feel more pain.

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muscleman Newbie

muscleman

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What I'd like to see is more forced selling by CHK to better capitalized folks.  Specifically, I'd love to see XCO and some JV partners scoop up these types of assets at great prices.

 

I own both CHK and XCO, as well as SD.

 

txlaw, I was working hard trying to understand XCO, but it is confusing to me why people say this is undervalued. Wilbur Ross and Prem both bought a ton of it.

XCO's market cap is 1.6 Bn, with proved reserves 1 TCF.

CHK's market cap is 11 bn, with proved reserves of 15 TCF.

CHK's enterprise value/revenue is 2.8 but XCO's ratio is nearly 6.

 

CHK has a ton of oil reserves but XCO is pure gas, so CHK's reserves are more valuable than XCO even if the TCF number is the same.

 

Could you please share with me your thoughts on this?

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txlaw Newbie

txlaw

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What I'd like to see is more forced selling by CHK to better capitalized folks.  Specifically, I'd love to see XCO and some JV partners scoop up these types of assets at great prices.

 

I own both CHK and XCO, as well as SD.

 

txlaw, I was working hard trying to understand XCO, but it is confusing to me why people say this is undervalued. Wilbur Ross and Prem both bought a ton of it.

XCO's market cap is 1.6 Bn, with proved reserves 1 TCF.

CHK's market cap is 11 bn, with proved reserves of 15 TCF.

CHK's enterprise value/revenue is 2.8 but XCO's ratio is nearly 6.

 

CHK has a ton of oil reserves but XCO is pure gas, so CHK's reserves are more valuable than XCO even if the TCF number is the same.

 

Could you please share with me your thoughts on this?

 

Muscleman, I posted my thoughts on XCO last year: 

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/how-many-board-members-have-been-investing-in-nat-gas-companies/msg71049/#msg71049

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fareastwarriors Newbie

fareastwarriors

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http://www.bloomberg.com/news/2013-03-12/chesapeake-must-wait-two-days-for-400-million-answer.html

 

Chesapeake Energy Corp. (CHK), the second-biggest U.S. natural gas producer, may have to wait as long as two days to find out if a judge will allow it to avoid $400 million in interest payments on $1.3 billion in notes.

 

U.S. District Judge Paul Engelmayer in Manhattan said at a hearing today that he will decide whether Chesapeake can inform bondholders by March 15 that it will redeem the 6.775 percent notes at par six years before they mature. Doing so would allow the energy company to avoid paying a “make whole” price that would include an additional $400 million in interest.

 

Chesapeake argued March 15 is the final date it can issue the formal notice of early redemption and avoid the make-whole provision, while indenture trustee Bank of New York Mellon and investors holding $250 million in notes said it’s the deadline by which the call would need to be completed, and thus it’s too late to start the process. Both sides quoted from different parts of the bond issue’s indenture paperwork to back their interpretation of the deadline.

 

 

 

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fareastwarriors Newbie

fareastwarriors

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http://www.bloomberg.com/news/2013-03-15/chesapeake-calls-bonds-after-judge-rules-on-make-whole-.html

 

 

 

Chesapeake Energy Corp. (CHK) issued a notice to redeem $1.3 billion in bonds early, at par, after a judge ruled that the gas producer would probably prevail in court over any demand to pay $400 million in extra interest.

 

The company said in a statement today that it will continue to pursue a federal lawsuit to confirm that it has met the deadline to redeem without triggering a “make-whole” provision that would require paying the extra interest. The 6.775 percent notes fell the most since May.

 

 

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muscleman Newbie

muscleman

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http://www.bloomberg.com/news/2013-03-15/chesapeake-calls-bonds-after-judge-rules-on-make-whole-.html

 

 

 

Chesapeake Energy Corp. (CHK) issued a notice to redeem $1.3 billion in bonds early, at par, after a judge ruled that the gas producer would probably prevail in court over any demand to pay $400 million in extra interest.

 

The company said in a statement today that it will continue to pursue a federal lawsuit to confirm that it has met the deadline to redeem without triggering a “make-whole” provision that would require paying the extra interest. The 6.775 percent notes fell the most since May.

 

What happened eventually to this matter? :)

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muscleman Newbie

muscleman

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I will try to find it if I can. It has been over six months so it is not easy.

I think chk seems to own a smart team that can forecast gas prices more effectively than most hedge funds?

Selling calls seems to be a dangerous business to be in. how long are the calls into?

I hope not too long.

I have been thinking about betting on the gas recovery for three years. I think chk is probably a very good bet. If price remains low, it's oil production can still buy us time to wait.

What other companies do you think are good gas bet?

 

I would never invest in CHK for their ability to forecast gas prices, but their track record in doing so is excellent.  Unlike hedge funds, CHK is the most active driller in the country and is involved in the most areas and most wells, so they should have better information on supply than anyone else.  Of course demand (weather) is another story . . .

 

I don't think selling calls on gas is a dangerous business for CHK, because they produce a ton of gas.  They are basically hedging, but instead of entering a forward contract they have simply sold a portion of their upside.  This leaves them exposed to the downside, so it isn't really a hedge, but it gets them money up front.  CHK's logic is basically: "if gas prices rose to $6 per mcf tomorrow, we would be making a bunch of money and shareholders would want us to hedge some of our production, so what's the big deal about selling $6 calls on 20% of what we will produce".  In the meantime, this looks to have been a shrewd bet that more cheap supply would come to market (which CHK would be in a position to know).  Like Buffett's put sale on the market, they have gotten money up front (which can be compounded), and they are winning the bet.

 

CHK discloses what calls they have sold in their financial filings.

 

I don't think anything else is as cheap as CHK, but other good ways to play a gas recovery are:

 

Buy DVN: it's cheap(ish), has good management, a great balance sheet and a lot of production.  I think they get sold in a few years

 

Buy UPL: it has more debt, but I like their assets and management, and its cheap

 

Buy CNX: its cheap(ish), has large cash flow from great coal operations and a lot of decent gas exposure

 

Buy XCO: its cheap and has a touch balance sheet, but Wilbur Ross is involved (see ICO)

 

In short, if you want great assets, you either have to pay up, or accept a weak balance sheet.  I like CHK because the world hasn't realized that their balance sheet isn't weak anymore.

 

t-bone, I recently got interested in XCO because I like their idea to have finance partners and look out for distressed assets.

In case none of those nice steals happen, do you think their current stock price is cheap? How do you value that?

I am pretty new to oil and gas industry so I am not sure. I see XCO's enterprise value/revenue is like 6.2 but CHK is only 2.1, while BP's only 0.44.

Perhaps the better way to value an oil and gas stock should be based on NAV? How will I figure out how much NAV XCO would have based on $3,4,5,6 gas? I only know that they have a very big probably/proved reserve ratio.

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fareastwarriors Newbie

fareastwarriors

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Chesapeake Picks COO Dixon as Replacement for McClendon

 

http://www.bloomberg.com/news/2013-03-29/chesapeake-s-mcclendon-departs-as-ceo-search-continues.html

 

Chesapeake Energy Corp. (CHK) picked Chief Operating Officer Steven C. Dixon to be acting chief executive as co-founder Aubrey K. McClendon steps down from the natural gas explorer he led for almost a quarter century.

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plato1976 Newbie

plato1976

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Yes, not that fast

but I believe the increased oil production in north america will eventually knock down world oil price in 5 years

Anyway, for CHK the upside is in its gas assets - oil is their way to make the cash while they are deleveraging;

 

I don't think oil price will drop very quickly or very soon -

A very big question mark is when the Chinese economy will dramatically shrink - I am afraid there will be such a point but seems no one can predict when

 

Anyone else concerned the new glut of oil production can do to oil prices what happened to natural gas prices a year ago?

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