Regardless of whether the Oklahoma City Thunder can overcome San Antonio's 2-0 lead in their NBA play-off series, fans may have to learn a new name for their arena.
Chesapeake Energy (CHK) looks to be headed for the auction block. And unless a rally can be found from the current price of natural gas, it could be just the first sale of many.
Combine Carl Icahn's big stake in the company, representing disgruntled shareholders like our own Devon Shire, with a Bloomberg analysis showing its current value at $9/barrel of proven oil reserves or equivalent, and you have a meal fit for sharks.
With Seeking Alpha's own Paolo Santos running the numbers and seeing Chesapeake headed toward insolvency there's also a sense of urgency. Benjamin Trotter has also looked at the Chesapeake numbers and concluded "it reminds me of a struggling EU periphery nation - Spain or Portugal." Ouch.
The question is whether this represents a buying opportunity, a chance for a quick turnaround on your investment.
Maybe, but don't expect a big premium. Here's why:
Chesapeake's distressed balance sheet makes it tough for the company to hold out for the best price.
The company's complex financial structure makes it a play only for the big boys, like Chevron and Exxon.
The American energy appetite is starting to decrease which should put pressure on prices going forward.
My view is that Aubrey McClendon will go down in business history as the father of the fracking boom, as the man who almost single-handedly turned the U.S. oilpatch from bust to boom. But he ignored the long-term truth of the oilpatch, which is its tendency to move quickly from shortage to glut.
When this happened early in the last century it took a government agency, the Texas Railroad Commission, to restore some sense of balance to the market, setting proration of well production as early as 1927. The state also bought the bottom-scrapings from the refinery barrel, the asphalt, to create the huge network of farm-to-market roads which I think are still the state's pride and joy.
I rode on one such road recently, on a bicycle, through part of the Eagle Ford shale play. These are the roads that gave us cycling champions like John Howard and Lance Armstrong. With gas at $3.60/gallon, I had the road mostly to myself. I do love Texas.
But with oil now a global market, there seems little prospect right now for a balanced energy market unless Texas joins OPEC or we approach costs. As time goes by, and America approaches energy independence, we might figure out that a balanced approach works better than an auction process for market stability.
But Chesapeake will probably be a memory by then. Season tickets for 2012-2013 at what may be called by then the Chevron Arena, go on sale soon, Thunder fans. Age will catch up with Duncan, Parker and Ginobili in time, as the boom-and-bust cycle of the oil market has caught up with McClendon.
But if you get there early on Thursday, you may still see legends, in the stands and on the court.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
