Despite What Market Says, Chesapeake Energy Believes It Actually Has A Simple Business Strategy [View article]
I'm not criticizing the act of selling interests. CHK's problem is that the asset sales are one time deals and the capital spending to HBP all of this acreage is still there. Are they going to continue to sell portions of their acreage? How much are they going to sell down to, a 25% interest? 10%? 50%? You can only sell so much.
They are massively cashflow negative without asset sales & drilling carries and will be even more so without their hedges. They've got a capital program when drilling carries are included that is rivaling COP, a company seven times larger. Where's the cash gonna come from to continue this with what little drilling carry remains?
Anyways, I think I've made my point. This whole thing started because you said they are targeting the sweet spots and selling off the rest. When you are selling an undivided interest in all your acreage in the position, that just can't be true based on the definition of an undivided interest. If it isn't divided, you can't cherry pick.
Despite What Market Says, Chesapeake Energy Believes It Actually Has A Simple Business Strategy [View article]
I've never said that all the Utica was the same nor do I believe it is.
Go read what you wrote above. The entire issue at hand is that you said that CHK was targeting sweet spots, retaining the sweet spots, and selling the lesser quality chunks of their acreage. That's just not true as they are selling undivided interests of all of their acreage in each play, or in the case of recent Utica deal, the liquids part of the play. With 36 years in the oil and gas field, certainly you know what undivided means??
"According to the terms of the deal, CNOOC will acquire a 33.3 percent undivided interest in the 600,000 net oil and natural gas leasehold acres in the Eagle Ford Shale in Texas for $1.08 billion"
" whereby Total acquired an undivided 25% interest in approximately 619,000 net acres in the liquids-rich area of the Utica Shale. "
"whereby CNOOC International Limited, a wholly-owned subsidiary of CNOOC Limited, will purchase 33.3% undivided interest in Chesapeake's 800,000 net oil and natural gas leasehold acres in the Denver-Julesburg (DJ) and Powder River Basins in northeast Colorado and southeast Wyoming. "
Do you need more examples? The large companies buying these aren't going to let CHK cherrypick acreage like you somehow think they are doing. That's a quick way to get screwed. They're selling undivided portions of the acreage and the buying companies also get the right to buy a proportionate share of any other acreage CHK leases in the area. That's about as far from cherrypicking as it gets.
As far as CHK continuing to fund operations, they are going to have to continue to sell assets, continue with the crazy financing schemes or cut capital spending. Cash flow from operations (especially since they took most of the hedges off!!) is nowhere near close enough to funding their current capital expenditure beast.
Will Chesapeake Energy's Actions To Support Natural Gas Prices Help? [View article]
Companies don't go out and drill verticals to hold horizontal play acreage. Vertical wells typically hold less acreage so you would have to drill more of them. Plus a vertical well is going to be rather expensive if you drill it to be able to sidetrack out of at a later time. You also complicate the positioning of horizontal wells by having to negotiate around the vertical wells. Not to mention the massive inefficiencies of moving the drilling rig twice.
They also sent out an email to their suppliers on a Friday basically saying lower your prices by Monday or you are never working for us again. What's that tell you about their position?
Despite What Market Says, Chesapeake Energy Believes It Actually Has A Simple Business Strategy [View article]
1. If you're talking about where the money is going, its disappearing into the vortex of their large acreage position. I don't think the market wants them drilling Marcellus or Haynesville wells, yet they have to in order to hold the acreage. With these commodity prices, it's essentially malinvestment in my opinion.
2. That's because their oil & gas production is not that impressive. 40% of revenues last quarter from derivatives? The main cash flow driver (essentially their life support) comes from land flipping. Look at the cash flow statement and look at their capital spending. It's insanity for a company their size. Look at what they would have deficit spent to do this without the land flipping. How is this going to continue?
3. See 2.
4. A larger dividend would only hurt cash flow even more, plus CHK doesn't care about investors. Constant dilution, shady deals with the CEO, etc etc
Despite What Market Says, Chesapeake Energy Believes It Actually Has A Simple Business Strategy [View article]
That's because they aren't selling lesser quality acreage. Who would honestly say that selling Utica liquids acreage is selling lesser quality? It just doesn't make sense! An undivided interest means you get xx% of the whole pie, not 5 acres here and 5 acres there.
It's no different than mineral owners owning a divided vs undivided interest in a section of minerals. If you own an undivided interest, you own 25% of each acre in the whole section. If you own a 25% divided interest, you own the, for example, northeast 25% of the section.
Look for continued asset sales or asset writedowns from CHK if gas prices continue to stay depressed.
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The saying "the market can remain irrational longer than you can remain solvent" is in full force. It's year 1999 all over. I'm convinced the only reason it is happening is manipulation & funds buying with other people's money. Certainly people are not stupid enough to actually want to buy these stocks with their own money at these valuations....or are they?
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There's no way the demand side holds up with the situations you are talking about. We already blew up a stronger economy in 2008 with $140 oil and $4 gasoline.
Chesapeake's 50% Upside Well Ahead Of Linn [View article]
He does contribute except when he got in a bind and needed the board to bail him out:
A one-time $75 million well cost incentive award that, after reduction by state and federal withholding taxes, was structured as a net credit against future billings from the Company for well costs owed by Mr. McClendon under the FWPP, with a five-year clawback;
CHK is the model for how stacking the board with cronies and paying them well lets you run a company with essentially no corporate governance.
There's a pretty important piece hidden in there. You say half of internet users already have an account. Some of the folks who don't have an account will never have an account. How does facebook continue to keep expanding when half the people already have an account and the amount of people on the internet is finite?
Living With Zero Interest Rate Policy [View article]
I'd like to invest in dividend stocks but like you mention the obsession with yield is crazy right now because of ZIRP. Look at the stocks with decent yield, most all are at 52 week highs if not all time highs.
Folks also tend to forget that the market, since 1980, has rallied on ever increasing amounts of debt in the system. If you overlay the charts, its pretty obvious. To be expecting 8% indefinitely, like most pension funds are, is pretty absurd.
I think I'll just sit back and watch the fireworks.
I think they forgot to include this paragraph in the S-1:
You're buying (essentially non-voting) stock in an IPO by a company who has no need for more capital (4B in cash/marketables & no debt) & is only offering stock so we can dump this trash on you before growth flatlines and P/E multiples drop.
Despite What Market Says, Chesapeake Energy Believes It Actually Has A Simple Business Strategy [View article]
They are massively cashflow negative without asset sales & drilling carries and will be even more so without their hedges. They've got a capital program when drilling carries are included that is rivaling COP, a company seven times larger. Where's the cash gonna come from to continue this with what little drilling carry remains?
Anyways, I think I've made my point. This whole thing started because you said they are targeting the sweet spots and selling off the rest. When you are selling an undivided interest in all your acreage in the position, that just can't be true based on the definition of an undivided interest. If it isn't divided, you can't cherry pick.
Despite What Market Says, Chesapeake Energy Believes It Actually Has A Simple Business Strategy [View article]
Go read what you wrote above. The entire issue at hand is that you said that CHK was targeting sweet spots, retaining the sweet spots, and selling the lesser quality chunks of their acreage. That's just not true as they are selling undivided interests of all of their acreage in each play, or in the case of recent Utica deal, the liquids part of the play. With 36 years in the oil and gas field, certainly you know what undivided means??
"According to the terms of the deal, CNOOC will acquire a 33.3 percent undivided interest in the 600,000 net oil and natural gas leasehold acres in the Eagle Ford Shale in Texas for $1.08 billion"
" whereby Total acquired an undivided 25% interest in approximately 619,000 net acres in the liquids-rich area of the Utica Shale. "
"whereby CNOOC International Limited, a wholly-owned subsidiary of CNOOC Limited, will purchase 33.3% undivided interest in Chesapeake's 800,000 net oil and natural gas leasehold acres in the Denver-Julesburg (DJ) and Powder River Basins in northeast Colorado and southeast Wyoming. "
Do you need more examples? The large companies buying these aren't going to let CHK cherrypick acreage like you somehow think they are doing. That's a quick way to get screwed. They're selling undivided portions of the acreage and the buying companies also get the right to buy a proportionate share of any other acreage CHK leases in the area. That's about as far from cherrypicking as it gets.
As far as CHK continuing to fund operations, they are going to have to continue to sell assets, continue with the crazy financing schemes or cut capital spending. Cash flow from operations (especially since they took most of the hedges off!!) is nowhere near close enough to funding their current capital expenditure beast.
Apache Looks Significantly Undervalued [View article]
yet
I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Why not?
Will Chesapeake Energy's Actions To Support Natural Gas Prices Help? [View article]
They also sent out an email to their suppliers on a Friday basically saying lower your prices by Monday or you are never working for us again. What's that tell you about their position?
Despite What Market Says, Chesapeake Energy Believes It Actually Has A Simple Business Strategy [View article]
2. That's because their oil & gas production is not that impressive. 40% of revenues last quarter from derivatives? The main cash flow driver (essentially their life support) comes from land flipping. Look at the cash flow statement and look at their capital spending. It's insanity for a company their size. Look at what they would have deficit spent to do this without the land flipping. How is this going to continue?
3. See 2.
4. A larger dividend would only hurt cash flow even more, plus CHK doesn't care about investors. Constant dilution, shady deals with the CEO, etc etc
Despite What Market Says, Chesapeake Energy Believes It Actually Has A Simple Business Strategy [View article]
It's no different than mineral owners owning a divided vs undivided interest in a section of minerals. If you own an undivided interest, you own 25% of each acre in the whole section. If you own a 25% divided interest, you own the, for example, northeast 25% of the section.
Look for continued asset sales or asset writedowns from CHK if gas prices continue to stay depressed.
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Chesapeake's 50% Upside Well Ahead Of Linn [View article]
A one-time $75 million well cost incentive award that, after reduction by state and federal withholding taxes, was structured as a net credit against future billings from the Company for well costs owed by Mr. McClendon under the FWPP, with a five-year clawback;
CHK is the model for how stacking the board with cronies and paying them well lets you run a company with essentially no corporate governance.
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Folks also tend to forget that the market, since 1980, has rallied on ever increasing amounts of debt in the system. If you overlay the charts, its pretty obvious. To be expecting 8% indefinitely, like most pension funds are, is pretty absurd.
I think I'll just sit back and watch the fireworks.
Analyzing Facebook's Risk Factors [View article]
You're buying (essentially non-voting) stock in an IPO by a company who has no need for more capital (4B in cash/marketables & no debt) & is only offering stock so we can dump this trash on you before growth flatlines and P/E multiples drop.
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Despite What Market Says, Chesapeake Energy Believes It Actually Has A Simple Business Strategy [View article]