Chesapeake Energy (CHK) is all set to announce its new chairman this week, a long awaited change. This change in leadership is nothing short of historical. The company, which was founded 23 years ago by Aubrey McClendon and Tom Ward, has never experienced a change in management once during that time. Perhaps that is part of the problem for the company's current bad image. Perhaps still, an earlier change in leadership would have kept it from deteriorating as it has.
So it is widely agreed then that the company needs a change in leadership if it is to survive. However, I believe that the subtext that we can infer here is that the quality of the new leader needs to be such that he or she actually has the ability to make the required changes a reality. However, I do not think that there are many qualified individuals out there who would be willing to take Chesapeake on in its current state.
McClendon, whose strategies in the past were instrumental in making the company what it is today, has agreed to step down as chairman following an investigation that showed that he has secured huge amounts of money in personal loans using his shares in the company as collateral. This is an unacceptable abuse of power and has caused the entire management structure of Chesapeake to be called into question.
Consequently, the company has a bad name at the moment and will struggle to find a good leader willing to tarnish his or her name by associating with the company on such an intimate level. McClendon will, however, maintain his position as the CEO of the company at this time.
In addition to finding a new chairman, the company also says that it will elect four new board members. However, we have no idea at this point who the new chairman will be. Two directors were denied the right to be reelected at the recent board meeting, yet the company has not accepted their resignation letters as yet. Basically, there seems to be a great deal of speculation about what is really going on at this time. We essentially need a greater degree of clarity if we are to make an informed judgment on where the stock is going.
This close scrutiny from its own investors, as well as regulating authorities due to the actions of McClendon, is not a good sign for the future stability of the stock. The best that investors in Chesapeake can hope for at present is that the new leader, whoever he or she may be, is enough to get the company back on its old path to success.
ATP Oil & Gas (ATPG) recently filed a lawsuit against the US government for "illegally" delaying and suspending its drilling activities in the Gulf of Mexico following the Gulf of Mexico oil spill a few years ago. This suspension has led to major losses for the company. It is significant in my mind that the company experienced a spike of 30% following the news of the lawsuit, as it indicates investor trust and backing in terms of the success and future path of the lawsuit that the company has started. We may even see other oil and gas stocks in similar positions following suit very soon.
One competitor, namely Chevron (CVX), is engaged in activities that its investors should keep an eye on. Specifically, the company recently signed an agreement with Tokyo Electric Power, or TEPCO, in which TEPCO get more liquid natural gas from Chevron's Wheatstone project based in Australia. In addition to this TEPCO is also purchasing an equity stake in the project as a result of this deal. This is clearly beneficial to Wheatstone, but the implications for Chevron are not yet clear and therefore the situation warrants close attention.
Exxon Mobil (XOM) has experienced a bit of a blow recently. The company had hoped to benefit from shale gas reserves in Poland, and received six exploration permits in the country for that purpose. However, after some initial testing, it seems that the shale gas reserves in the area are simply not as good as it expected and it has called off the plan. The main problem is that there is not enough gas for commercial purposes, making the wells tested so far unviable for further development. The main problem facing Exxon now is where to go from here in terms of its presence in the country.
The number of Texas residents that are suing BP (BP) has reached more than 50,000. This is another nail in the coffin of this struggling company. The main facts behind the story are as follows. The company experienced an extremely serious explosion at one of its refineries. As a result of this emissions leaked from the refinery for a period of 41 days without stopping. Now more than 50,000 people claim that they are ill due to those emissions and are demanding that BP be held accountable for putting their health, and perhaps even their lives, in danger.
Chesapeake is in trouble. If you are looking for an oil and gas stock to back, this is not the one to run toward. The company is suffering a huge degree of upheaval at present and investors need to get a clearer picture of what is going on before making a decision. New leadership could be the catalyst that turns the company's fortunes around or it could keep it sinking. On the other hand, it could make no difference at all or even make the situation worse. At this point, all we can do is wait and see.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.