Bill Herbert

My Problem with Chesapeake Energy's New Deal

>>Bro: CHK's bankruptcy potential is highly over rated. Looking at the value of the underlying assets - I'd say they are safe...<<

I agree, but I also think that CHK may be very volatile, as my view is that NG will soon drop to around $4, based on the fact that industrial demand has been crushed, and people are obviously conserving gas at home (i.e. keeping the thermostat low) and there is an enormous amount of gas being produced. This recent cold snap helps, but there will be 1700 BCF left in early April, and I don't know what will hold the price up.

I've made a TON of money on CHK the past six years, but now they have a more complicated situation, more risk, a really crappy economy to sell into, and no support from the oil or coal price. I love CHK too...but...

Look at what oil did today - with the market soaring and everybody high-fiving over the "Bad Bank" scenario, it got killed. Inventory rose over 6 MM barrels.

CHK will be a trader's dream over the next year or so, until the economy stabilizes. My strategy is to just buy the dips, and when it pops two or three bucks, sell covered calls, and forget about the dream of seeing the $30 range in the near future.