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Chesapeake’s faltering Oklahoma gas field threatens $880M in loans

  • Lower than expected production from Chesapeake Energy’s (CHK -1.1%) Sahara natural gas field in Oklahoma is threatening $880M in loans and notes from Barclays under a pair of agreements that repay the borrowings with future supplies of gas, crude oil and gas byproducts, Bloomberg reports.
  • Output from 3,300 CHK-operated wells in the Sahara field was 12% below projections during six months ending in February, Moody’s says; as a result, the production coverage ratio on the Glenn Pool Oil & Gas Trust five-year loan and 10-year notes declined to 1.18 from 1.29.
  • In December, Moody’s had downgraded ratings on $360M in CHK borrowings backed by Barnett Shale wells in Texas after production growth there slowed to 3.4% in 2013 after growing at double-digit rates in 11 of the prior 12 years.
Comments (11)
  • wigit5
    , contributor
    Comments (3964) | Send Message
    Is this the pre-cursor to the NatGas boom collapse? I dont really know but a whole lot of people have been saying the depletion rates for these wells is astronomical.
    26 Mar, 03:21 PM Reply Like
  • Energysystems
    , contributor
    Comments (944) | Send Message
    It also screams to the "flaring off" implications, for example, nearly one third of North Dakota's nat gas production is being flared off. We're talking about $1M per day in NatGas being flared. Now, of course many will argue that it's not worth the infrastructure to build, but I know Rockefeller is rolling over in his grave!
    26 Mar, 03:28 PM Reply Like
  • wigit5
    , contributor
    Comments (3964) | Send Message
    Yeah the flaring thing is concerning simply because its a waste of a finite resource... but I guess since I have a position in coal I should be happy...


    still grinds my moral compass a bit though
    26 Mar, 03:43 PM Reply Like
  • gw20swabcup
    , contributor
    Comments (2) | Send Message
    gas production was down every where due to the cold weather. It's hard to keep the compressor running in cold wather hard to make compressors
    26 Mar, 07:18 PM Reply Like
  • papayamon
    , contributor
    Comments (1063) | Send Message
    What does this have to do with CHK as a company? I don't understand the structure of this agreement. Is CHK itself going to suffer a loss here, or are these trusts that CHK services and separate from the company?
    26 Mar, 05:38 PM Reply Like
  • MB
    , contributor
    Comments (28) | Send Message
    If you guys are CHK investors you probably need to brush up on volumetric production payments (VPPs). You should also probably go ahead and read the SEC filings to understand the penalty for CHK not meeting their obligation under the VPP agreement. In response to the first comment, I don't think the results in this one field have too many people worried about US natural gas production. Do a Google search on stacked oil & gas plays or multi-pad drilling.
    26 Mar, 06:32 PM Reply Like
  • Energysystems
    , contributor
    Comments (944) | Send Message
    Thankfully, I'm an Access Midstream investor(formerly CHKM). Their contracts remind me of the Goodfella scene "F you, pay me", in a good way of course.
    26 Mar, 07:11 PM Reply Like
  • John28552
    , contributor
    Comments (2) | Send Message
    Volumetric Production Payments are not loans but transfers of reserves.
    "A VPP is a limited-term overriding royalty interest in natural gas and oil reserves that
    (i) entitles the purchaser to receive scheduled production volumes over a period of time from specific lease interests;
    (ii) is free and clear of all associated future production costs and capital expenditures;
    (iii) is nonrecourse to the seller (i.e., the purchaser’s only recourse is to the reserves acquired);
    (iv) transfers title of the reserves to the purchaser; and
    (v) allows the seller to retain all production beyond the specified volumes, if any, after the scheduled production volumes have been delivered." p116 CHK 10-K 12-31-2013
    bloomberg reporter: Joe Carroll & editors : Susan Warren,Jasmina Kelemen, Stephen Cunningham need to work on their fact checking
    27 Mar, 02:11 AM Reply Like
  • John28552
    , contributor
    Comments (2) | Send Message
    A volumetric production payment (VPP) deal is a means of financing that has been used in the oil and gas industry for several decades. A VPP involves the owner of an oil and gas property selling a percentage of their production in exchange for an upfront cash payment. See p116 CHK 10-K 12-31-2013. Barclays Capital set up the trusts. CHK just provided the VPPs. Moodys and S&P rated them BBB even thought CHK was BB+. see
    27 Mar, 03:00 AM Reply Like
  • Pgman701
    , contributor
    Comments (100) | Send Message
    Just another reason to avoid CHK like the plague!!!
    27 Mar, 03:56 AM Reply Like
  • GamCap LLC
    , contributor
    Comments (406) | Send Message
    Must have been a slow news day for Bloomberg to run crap like this article. Depletion rates on these wells and every other shale well in the country are higher that what had been initially estimated...what a shocker. These VPP's, as CHK demonstrated upon selling their Permian assets in 2012 which had VPP #7 associated with it.....can be closed out by buying out the remaining term of the remaining vols gas futures.


    Of the remaining 9 VPP's on their book, I'd expect at least 1/2 to be wiped out by year end.
    27 Mar, 06:24 PM Reply Like
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