Chesapeake Energy: Truckin', Like the Do-Dah Man

Chesapeake Energy (CHK) announced after the close yesterday that they will offer 25 million common shares with the customary 15% over allotment. Net proceeds from the offering will be used to temporarily repay outstanding indebtedness under its revolving bank credit facility which it anticipates re-borrowing from time to time to fund its recently announced drilling and leasehold acquisition initiatives and for general corporate purposes.

Take a look at the capital flows (pro forma) since the end of last quarter:

• April 2 - Sold 23 million shares of Common netting $1.011B
• May 1 - Sold Tex-Okla-Kan assets for $623 million
• May 1 - Sold Woodford Shale holdings for $1.5B
• May 20 - Sold $1.38B of Contingent Convertible Senior Notes netting $1.173B
• May 20 - Sold $800 million of Senior Notes netting $487 million after retiring notes.
• July 1 - Sold 20% interest in the Haynesville shale to Plains Exploration (PXP) for $1.65B
• July 8 - Selling 28.75 shares Common to net $1.7B (estimated @$60/sh. net)

                            *****************************

Net Cash from Equity Sales $2.71B 
Net Cash from Debt Sales    $1.66B
Net Cash from Asset Sales  $3.77B 
                                              Total $8.14B

The $1.65B Haynesville sale to Plains Exploration also includes an additional $1.65B commitment for future cost sharing to develop the play. This transaction effectively raised the value of Chesapeake's remaining 80% interest in the Haynesville by $9.5B to $13.2B. At the end of Q1, CHK's market cap was about $24B. Including the latest offering shares, as of yesterday's close, the market cap would be $35B; up 42% (diluted) while net assets, thanks to the Haynesville alone are up 81%. The Woodford sale and Q2 net income will probably further enhance shareholder equity.

The only acquisitions announced during the period were for 18,000 acres in the Haynesville from Goodrich Petroleum and a third party for about $300 million (est.), and the Pier One building. So, going into Q3, any concerns about CHK's debt levels should be laid to rest; that is, unless Aubrey finds another Hunt Petroleum.

Sometimes the lights all shinin' on me......

Positions: None

 

Comments

[Lewis Whoke...:]

As a stockholder in CHK I'm watching all my gains evaporate. Record high nat gas prices and these clowns are diluting shareholder equity? Where's Carl Icahn when you need him?

2008 Jul 09 07:59 AM

[sharksm:]

I've been a CHK shareholder for 8 years, hold 27,000 shares and have no problem with a secondary to pay off debt. The dilution will be minimized by increased production and lower borrowing costs through pay down of debt. CHK has the best management team in the energy area, and I suggest you calm down. Carl Ichan's record hasn't been too good lately..... McClendon has been hitting home runs!

2008 Jul 09 08:11 AM

[DutchMark:]

If you're seeing your gains evaporate you can't have been shareholder for very long. Most likely you jumped on the energy bandwagon after it had already gone up a lot. And then of course it had to go down.

Dilution is always something to watch out for. But what counts in the end is what's the ROI on the money they raise. So far it's been staggering and as long as McClendon can keep it up I don't mind him being busy making more deals.

I hope it goes a lot lower because I don't have anywhere near 27,000 shares and I'd like an excuse to buy more.

2008 Jul 09 08:40 AM

[valueinvest...:]

Yeah my guess is if you are concerned about your gains being diluted the gain must be pretty small whcih probably means you jumped on this bandwagon less than a month ago. You probably are some know nothing Cramer follower.

2008 Jul 09 09:37 AM

[bluesmoke:]

Ha ha ha - good comments all!

2008 Jul 09 09:56 AM

[wsigler:]

OK Slammers - time for you to crawl back into your Yahoo boards...

Wayne

2008 Jul 09 10:04 AM

[Ozarker:]

I bought Chesapeake because my brother-in-law came over wearing a Chesapeake ball cap that he got in a golf tourney in Oklahoma City. I said "Who's Chesapeake Energy?" and he said "they're the attack dogs of the Natural Gas industry. My fundamentals satisfied, I bought some.

2008 Jul 09 10:31 AM

[mags:]

I want a Chesapeake ball cap!

2008 Jul 09 10:36 AM

[CaptainT:]

other times I can barely see

2008 Jul 09 10:42 AM

[valueinvest...:]

Wayne: I hardly consider myself a slammer. Short of buying CHK within the last month you really wouldn't be that worried about value being diluted by this deal this is because of the dramatic rise it has seen since the start of 2008. My guess is that Lewis bought the stock recently after seeing it profiled either by Cramer or Fast Money and he is upset he might have bought at a short term top. I mean he is calling for Carl Ichan to get involved in a stock that is up over 50% YTD.

2008 Jul 09 11:04 AM

[Sirilover:]

I bought just recently too but not much off todays trade. I wish I had n=more cash to buy. McClendon has bought since Mid May from what I can tell about 750k shares. I dont think this would happen if the stock was ready to poop out! I'm long CHK.

2008 Jul 09 11:06 AM

[wsigler:]

Valueguy:

I guess we have different notions of what constitutes a slam: This is your quote: "You probably are some know nothing Cramer follower. "
WTF do YOU call that?
Wayne

2008 Jul 09 11:22 AM

[Itsonlymoney:]

Shark, what is with your website? Just a bunch of ads with no content. I expected to be able to read how you made your money.

2008 Jul 09 11:29 AM

[Sirilover:]

Wayne,

No children allowed on this blog!

2008 Jul 09 11:29 AM

[wsigler:]

rocket:

What an asinine comment.....idiots need to leave with the children.

2008 Jul 09 11:45 AM

[valueinvest...:]

Wayne: I don't consider that a slam because based on his statement of "watching all my gains evaporate" and wanting Carl Ichan to get involved my guess is that he bought the stock recently based on a suggestion from a show like Fast Money or Mad Money which by nature makes him know nothing if he did that. He also wants Carl Ichan to get involved in a stock that is up 50%+ for the year which is even more ridiculous. He could not have bought the stock even 3-4 months ago otherwise he would still have a great gain despite the recent slide. For the record, I think anyone who listens to either Cramer or Fast Money is a know nothing and I wish both shows would jump off the CHK bandwagon.

2008 Jul 09 01:07 PM

[Sirilover:]

Wayne,

You add no value to this blog, and more than likely life in general!

2008 Jul 09 01:45 PM

[Turley Muller:]

I;m thinking that CHK is hesitant to load up on debt even though it avoids shareholder dilution. Equity financing and asset sales provide cash with out increasing debt levels, which may allow CHK to cut back on hedging.

If debt levels are high, one would want to be well hedged no matter how strong the market, NG prices collapse, interest payments remain, and a firm could be wiped out quick. With the up trend in NG, I would think CHK would like to remove some hedges to take advantage of rising prices

2008 Jul 09 02:43 PM

[User 206965:]

Dear Sharksm; Since you own 27,000 shares I thought you would be able to answer me this question. At what price do you finally sell???? Over the next 3 to 4 years where can this CHK go price wise?????

2008 Jul 09 03:17 PM

[richjoy:]

I own CHK, I want to own a bit more (but not too large a % of portfolio) because I think CHK is among the best natural gas stocks at a time when demand for NG is increasing. I don't mind contrary opinions, and have no intention of getting into a pissing match over CHK.

2008 Jul 09 03:19 PM

[omarason:]

The last time CHK did a secondary offering, the stock went on a 10% run throughout the following month. If you believe in technical analysis, secondaries typically signal the bottom of a move. At a 50% retracement (68-58), you're looking at a price level close to the $63 range by the end of the month. That's still a +50% move YTD. I'll take that in this market. So should you.

2008 Jul 09 05:36 PM

[User 206965:]

Dear Sharksm; Since you own 27,000 shares where do you think the price of CHK will be in 3 to 4 years????? Are you going to hold that long???? What made you take such a Large Position??????

2008 Jul 09 07:48 PM

[cgg484:]

Other times I can barely see

2008 Jul 11 11:09 PM