Alex Hardman

Chesapeake Granite Wash Trust Still Overvalued

Summary

The Trust has numerous issues that greatly increase the risk that isn't properly compensated for at current prices. The Trust is currently at least 24% overvalued, and possibly more if investors adjust their desired rate of return from the initially targeted rate of return. Investors are basically playing the BTU spread convergence (1 barrel of oil = 6 mmbtu of natural gas in energy output terms) while production declines at a fast rate.

Overview of Trust

Chesapeake Granite Wash Trust (NYSE:CHKR) that allows unit holders to receive proceeds attributed to the royalty interest of a collection of wells controlled by Chesapeake Energy Corporation (NYSE:CHK). The wells target the Oklahoma Colony Granite Wash formation located between...

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