Chesapeake Energy (CHK -13.9%) may have to delay some of the $14B in asset sales planned for...

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Chris Lau Comments (1148)
 
But It's business model right now (with nat gas prices where they are) is centered completely around asset sales.
11 May 2012, 04:06 PM Reply Like

mikeg999 Comments (34)
 
Sold out over the past 2 days-way too much noise to evaluate the risks. There are better natural gas risk-reward options.
11 May 2012, 04:12 PM Reply Like

Mike Maher Comments (1876)
 
Exactly. I think investors are beginning to question if CHK can remain a going concern. If the bonds start to get crushed I might take a look at getting some puts.
11 May 2012, 04:29 PM Reply Like

bigazul Comments (915)
 
Mike, your two magic words "going concern" is the root of the whole problem CHK has. It's one of the first 10 terms your learn in managerial accounting, but no one seems to use the term any more or remember what it means.
11 May 2012, 06:44 PM Reply Like

Mike Maher Comments (1876)
 
Haha we use it at work when we talk about if the assets we are valuing are being sold during bankruptcy, but its def a managerial accounting term.
11 May 2012, 06:51 PM Reply Like

enigmaman Comments (2647)
 
to much noise resulting from CEO over and over again, not worth the trouble
11 May 2012, 04:14 PM Reply Like

the_value_vulture Comments (88)
 
So can we officially throw out the whole "but chi is valuable because of their great portfolio of assets" thesis. This company is a sinking ship .
11 May 2012, 04:26 PM Reply Like

mikeg999 Comments (34)
 
I learned that garbage at a discount is still garbage.

We can all measure the cost of ineffective CHK corporate governance that permits self dealing and enrichment.
11 May 2012, 04:36 PM Reply Like

tsra1983 Comments (38)
 
Mike, you hit the nail exactly on it's head.
11 May 2012, 07:41 PM Reply Like

240443 Comments (2)
 
Net assets per share exceed share price by a wide margin.

I just hope the buyer for these assets is an American company. I could live with a Canadian outfit.

W Dolan
11 May 2012, 04:36 PM Reply Like

untrusting investor Comments (9879)
 
So at what point does CHK become a buy then? $10/share ??
11 May 2012, 05:00 PM Reply Like

Mike Maher Comments (1876)
 
They've been saying that for a long time. Take out the debt, and all the off balance sheet debt, and things begin to look a little more bleak. First they said they were going to sell assets to make up for a cash shortfall. Now they are saying they might not be able to sell assets to cover the shortfall. So who is going to pay the bills when the bondholders come calling? Either the company pays, or the shareholders get nothing and the bondholders become new shareholders.

The shows over for management here. That press release today was like throwing blood in the water. CHK is in play, but if that happens in or out of bankruptcy is the question, in my opinion.
11 May 2012, 05:45 PM Reply Like

mjp1805 Comments (13)
 
I lost enough to hurt -- even at a relatively rarefied 21.70 -- before all the news re: McClendon. What was my catalyst? I had heard that CHK decided to forego all their nat gas hedges. That sent me running -- loss and all. It seemed like a reckless, desperate move on their part. Probably a short-term cash-saving ploy. McClendon and this board should be ashamed. But here's a case where, clearly, $ supplant sense. Or shame.
11 May 2012, 04:51 PM Reply Like

MadAsHellAnd Comments (194)
 
But talk like that mjp is suggests that there is no price that is too high for insurance. Would you pay $4,000 every six months to insure a $4,000 car? I know that governments financially operate that way but in the real world there's viability, recoverability, exposure, and against all of these - COST.

I tend to feel that this was a marginal probability-weighted revenue/cost decision. Moreover, if nat gas has truly bottomed, in hindsight it will be a 100.0% correct move, and what you call sensible is wrong - again, potentially, in future hindsight. We'll see. But to summarily call this out with, and I quote, "desperate" "ploy" "ashamed" "$ supplant sense" ? You'll be advised to eat those in the public square, if NG has bottomed.
11 May 2012, 05:15 PM Reply Like

Matthew Smith Comments (521)
 
You should listen to the conference calls then and you would know that it had nothing to do with price. You might want to apologize to mjp b/c the company did it trying to turn a short-term profit. The nat gas hedges came off because they saw prices falling, thought it was due to the Greek situation so sold for the profit expecting nat gas to quickly recover and no harm done. That took place before the warm winter and needless to say they have been forced to sell nat gas at lower and lower prices. They got caught and it appears that it has cost them. Aubrey said this all on the conference call in the Q&A - and they did not take the hedges off at the bottom.
11 May 2012, 05:30 PM Reply Like

pat50 Comments (44)
 
Nat gas is going back up...that should be good for CHK and other nat gas plays. I amnot certain they should sell gas wells to buy oil wells_gas wells should go up faster. Todays markt scare on financials leaves me scared. Happy dont have too much
11 May 2012, 06:25 PM Reply Like

MadAsHellAnd Comments (194)
 
All right, if it was short term then I stand corrected. I'd apologize, if I had criticized the phrase "short term."

I do admit that I'm busted - maybe. The conference call was May 2 and I interpreted it as "new news" - I did not know it was before the warm winter. Thank you for chastising me to review the transcript.

All the same, it still may be the right move. More on that in a minute. But, now, are people really saying that the headline number (2012 statement effect) is the full extent of their thinking and analysis? I mean, come on, if they're nothing but yokel cretins, then they should just write options, both sides, and book the proceeds. I don't think the conference call content precludes common basic analysis, just because they didn't go into such detail. I'm not saying you're wrong; you may know the players well enough to say, 'yes, they're that superficial and financially unsophisticated.' I just am skeptical, and the conference call is unpersuasive. I'm still open to persuasion though.

As to "the right move" - it really comes down to scale. And MARGINAL effect. Did $353 million displace (already, or in the future) $353 million of put exercises? If not, and NG doesn't sink further, then it simply is the numerically correct move.

Not picking on you at all, but just musing now - risk management (which sounds like is the issue here) can be somewhat like macro economists (cough, Keynesians, cough) in that those practitioners who have invested great study and research and refinement think, "we're the only ones qualified to pontificate on the correct approaches of these things." Never mind that they're in the wrong ocean to begin with. At any rate, I assume that the risk managers' "conventional norm" is to moderate volatile revenue items like energy (or costs like jet fuel prices) by hedging with futures or other derivatives. If you read that in Forbes it's hard to argue with that. Because, yes, it's prudent, and right - except when it's not. Risk managers (some! Sorry, anybody!) would have you always hedge, and would have you buying puts when the price is zero, even paying the United States interest if you just hold my dollars in Treasuries (the bizarre negative yield condition).

I'm just saying there's a threshold and I believe they evaluated it. I don't have the numbers so I could be all wet. If NG sinks sufficiently it could be bloody too.

I haven't seen enough to say that "desperate" and "ashamed" are premature, and - I stress, potentially - potentially 180° wet. But then again, maybe they got shredded between the price of 3 and 2.5. Maybe they're zombies. Once again - we'll see.
11 May 2012, 07:06 PM Reply Like

Matthew Lewis Comments (259)
 
There is nothing wrong with taking off hedges completely, as long as your balance sheet can handle the lower prices for an extended period of time. Taking off all of your hedges when you have as much debt as CHK has is horrible risk management. They don't hedge, they gamble.
11 May 2012, 07:47 PM Reply Like

Matthew Smith Comments (521)
 
Yea they booked a gain, and that is what they were going for, but what they did not count on was that natgas prices were moving down on actual market weakness and that market events would force prices to stay low. So far this has cost them as they booked the gain from the put prices to the actual price plus the time value on the day they sold. But since then nat gas prices have fallen further and the company has had to bear the 'expense' of lower revenues off of the sale of their natural gas.

They could get lucky and have natural gas prices rise back up to $4 but Aubrey admitted that they got caught on the wrong side of that trade. Their track record though is quite impressive in these matters and I was always taught it is better to be lucky than good!
11 May 2012, 08:05 PM Reply Like

mjp1805 Comments (13)
 
To: Mad, Matthew Lewis et al.

Maybe I overdid it with words like "ploy" or "desperate" regarding CHK's taking off all hedges. But who knows for sure? Per ML' s comment, they do seem to gamble more than "manage" business. Where they are right now might be an excellent example thereof.

FYI, the night before I heard about CHK's decision to remove all hedges, I was watching Cramer's "Mad Money" and he had the CEO of Linn Energy on for an extended interview (I can't recall the gentleman's name). He explained LINE's extensive hedging philosophy in ways that simply made a great deal of sense to an individual investor like me. The very next morning I read the news of CHK's action viz a viz hedging. That, combined with the ongoing talk regarding their cash position -- and their need to sell assets -- hastened my decision to sell.

I wish all good luck here, with CHK and with all your positions.
11 May 2012, 09:52 PM Reply Like