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Chesapeake Energy (CHK -3.1%) swings without a safety net after reportedly removing most of its...

Chesapeake Energy (CHK -3.1%) swings without a safety net after reportedly removing most of its derivative hedges against gas and oil prices for 2012 and 2013. It's a big reversal in philosophy for a company that once bragged of being "the best in the industryā€¯ at natural-gas hedging.
Comments (12)
  • Deckjack
    , contributor
    Comments (3) | Send Message
     
    Doesn't it make sense to do at what could be a generational bottom in nat gas?
    9 Apr 2012, 02:07 PM Reply Like
  • MadAsHellAnd
    , contributor
    Comments (210) | Send Message
     
    This article wording sounds like bitter sarcastic criticism of them. What if indeed the best and smartest hedging move is to remove money-burning hedges? News flash: they ain't free. They peel off yield.

     

    Methinks that you better hope that their strategy grandiosely blows in the next 21 months, lest you issue the most grovelling bootlicking salute to their brilliance on 12/31/13 - for having foregone purchase of worthless hedges, out-earning all of their bitter competitors and bitter detractors :)
    9 Apr 2012, 02:08 PM Reply Like
  • Christopher Wallace
    , contributor
    Comments (1076) | Send Message
     
    There is only one reason to remove the hedges: they beleive prices will rise. It is a bold move and they must have pretty high conviction in order to do that. That is an event worthy of paying attention to.
    9 Apr 2012, 02:13 PM Reply Like
  • mrshihtzu
    , contributor
    Comments (8) | Send Message
     
    You're missing the point. Hedges were taken off in 3Q 2011. Money was made at that time but it could have been a lot more if the hedges remained in place. Mgmt thought prices bottomed around $4. They are down nearly 50% since then. Rightly hedges have not been put back in place because there is little reason to lock in prices at multi-year lows.

     

    The same report said Linn Energy is selling gas this year at ~$5 per mcf because of its hedges. CHK could have been in a similar situation, if its hedges we're kept in place.
    9 Apr 2012, 02:26 PM Reply Like
  • hotnutsjesus
    , contributor
    Comments (79) | Send Message
     
    That's a buy signal if I ever saw one...
    9 Apr 2012, 03:03 PM Reply Like
  • Grandlakepolice
    , contributor
    Comments (8) | Send Message
     
    One must remember that it is unlikely that this ten year low in NG prices is part of the "typical" boom bust NG cycle. If this is part of that normal cycle then one could probably bet the farm that higher prices are just around the corner. But new technologies have made drilling for NG much more successful, supplies some say will last for 100 years.
    Normally, one could expect drilling to stop at these low prices but the E&Ps can use these same technologies to drill for high priced liquids. So drilling for liquids is at historic highs. And with the liquids comes.....more NG.
    I dont have enough info to know the net impact on NG production with NG rigs decreasing rapidly but liquid rigs that. Also produce NG increasing dramatically.

     

    There will be increased application of NG of course and between power production and automotive use I expect big gains. But these will take years to have their impact felt, what. Do we do until then with these low prices?
    9 Apr 2012, 03:40 PM Reply Like
  • MadAsHellAnd
    , contributor
    Comments (210) | Send Message
     
    Ha! Exact same authors, applauding the hedging performed by Linn Energy, published on the same day.
    They sure are setting themselves up to look like fools.

     

    http://bit.ly/IhNHnT
    9 Apr 2012, 04:06 PM Reply Like
  • bigazul
    , contributor
    Comments (1001) | Send Message
     
    I'm thinking that CHK expected domestic production cuts to have a bigger effect on the market.
    9 Apr 2012, 04:11 PM Reply Like
  • MB
    , contributor
    Comments (29) | Send Message
     
    Wow, another way for Aubrey to keep the boat afloat for just a little while longer. I am not sure any of you read that article, but he lifted the hedges at a terrible time.
    9 Apr 2012, 05:33 PM Reply Like
  • Chris Lau
    , contributor
    Comments (1926) | Send Message
     
    (CHK) is so big it influences the price for natural gas. Natural gas traded at $2.11 ( http://bit.ly/zwBNxx ). No one, not even CHK, knows when it will bottom, but this kind of move removes the bearish bet against the commodity.

     

    It is a positive for those holding (CHK).
    9 Apr 2012, 06:14 PM Reply Like
  • Harry Johnson
    , contributor
    Comments (482) | Send Message
     
    One of the most interesting numbers that a researcher could come up with would be the cumulative net profit or loss that CHK has realized since the Company put on the first hedge.
    9 Apr 2012, 08:23 PM Reply Like
  • jure@bomelconstruction.com
    , contributor
    Comment (1) | Send Message
     
    I thought CHK switched their priority to oil and NGL production and reduced their focus on NG? If true, seems like they are capitalizing on the higher profit commodity....
    10 Apr 2012, 03:31 AM Reply Like
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