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Chesapeake (CHK) owes at least a hat tip to Canada for its role in the $1B joint venture with...

Chesapeake (CHK) owes at least a hat tip to Canada for its role in the $1B joint venture with Sinopec (SNP); the government's stamp of approval for Cnooc’s (CEO) $15B takeover of Nexen (NXY) surely "gave a green light for upstream investment” from China. Late today, Cnooc's contentious takeover closed after it was first announced seven months ago.
Comments (7)
  • westelk
    , contributor
    Comments (270) | Send Message
     
    As Buffett predicted a few years ago, we will become "serfs in our own land" if business decisions continue to be driven strictly by the fast money people on Wall Street.

     

    I assume, perhaps wrongly, this was approved, if not driven, by the new BOD. If CHK has to take such write-downs on any other fields, they might be history. This sale will cause problems for other overextended companies. It would seem the virtuous circle to the upside has become a malignant circle to the downside.

     

    I cannot see anyone buying the company given the complexity and problems they have created for themselves.
    25 Feb 2013, 07:47 PM Reply Like
  • bankstocks
    , contributor
    Comments (1371) | Send Message
     
    Westelk:

     

    Such a generalization. What writedown. Get a clue!!! You follow the media herd.

     

    The price for the Miss Lime was LESS than the Investor Herd expected but what writedown!!!!!!!! You mean your 5% stock drop yesterday? I am long CHK. Do you know what you own if you are long? Do you know what the company sold?

     

    The sale was a 50% non-operated interest in 425,000 net acres for $1.02B cash. The price was less than expected for at least two reasons I know. The asians have gotten smarter about paying up too much for these JV deals.............and.... took all cash up front instead of a 1/3 down and 2/3rds drill carry over 3-4 drill carry term.

     

    CHK was very early in the Miss Lime. Prices per acre were $200 back then. Kansas in size was about $500 an acre in 2012 and Oklahoma prime was never much more than about $800 per acre even as we speak.

     

    China bought 50% of the 425,000 acres or $2,350 an acre, about.
    The land had proved reserves of 140M and production of 34,000 BOE a day. 50% oil and liquids. 50% of this is 70M 2P and 17,000 boe day. Lets say $70,000 per flowing barrel is a reasonable number for the existing production based on 50% liquids. That is $120M for the existing production the Chinese paid. Even if you valued the existing production at a sky high $100,000 per flowing barrel for 50% oil and NGL's you get
    $170M for the existing. These leaves $850M for the undeveloped land. Or $1,888.88 per acre. What writedown?

     

    I would say Aubrey M hit again for 2-3X his investment on Miss. Lime.......all in. Lets see what they book for a gain in 1Q 2013!

     

    CHK had over 2M acres all told in the Miss Lime. They sold less than half the position........The developed half, according to the media. But there is huge undeveloped component to the developed half even..........It's still early days for the Miss Lime.
    26 Feb 2013, 07:06 AM Reply Like
  • Carolina1954
    , contributor
    Comments (162) | Send Message
     
    Bankstocks,

     

    17,000 BOEPD x $70,000/BOEPD = $1.19 Billion
    17,000 BOEPD x $100,000/BOEPD = $1.70 Billion

     

    One way to look at the Miss sale is that the Chinese paid $60,000/BOEPD for the production, and got the acreage free. Confucius say, if you get oil field for free, take it.

     

    C. David Kirby
    26 Feb 2013, 08:16 AM Reply Like
  • westelk
    , contributor
    Comments (270) | Send Message
     
    Difference of opinion are what make markets. I would rather be wrong (not buy) and miss a run, than be wrong (buy) and suffer a collapse. One is a loss of potential funds, the other is a loss of real funds. One causes little damage to the portfolio, the other causes significant damage.

     

    As to whether I know what I own, I always read 10K footnotes, which is why I haven't owned CHK for more than 7 years.
    The 2012 10K has already (if CHK meets their normal end of February, early March deadlines) been printed. So in a few days we can look into the footnotes (which almost nobody reads) and see the values reported to the SEC (facts--supposedly), as opposed to the optimistic investor presentations (sell side publicity).

     

    Given CHK's past history of over promise and under delivery via investor presentations, I tend to err on the conservative side. I'll buy CHK again when I can read the 10K with a minimum of effort and feel secure. The footnotes in CHK's last few 10Ks have been challenging to read, much less understand, which has always been a red flag to me.
    26 Feb 2013, 08:53 AM Reply Like
  • dingojoe
    , contributor
    Comments (223) | Send Message
     
    I guess the WSJ slept thru the joint ventures CHK signed with CNOOC in 2010 and 2011.
    26 Feb 2013, 07:36 PM Reply Like
  • bankstocks
    , contributor
    Comments (1371) | Send Message
     
    Carolina1954:

     

    You are right!!!!! A pretty big mistake on my part. I am missing a ZERO. What a bargain. No wonder Aubrey and the BOD clashed a bit and he resigned. I bet he was arguing for NO DEAL at this price and the BOD said lets pay down the debt and move on!

     

    On 2P reserves it was a decent number CHK got. 140M 2P /2 is 70M 2P for 1.02B is about $14.30 for 45% gas.

     

    Lets throw away the gas production since it's marginally cash flowing anyway and not worth drilling on its own. 54% Oil & Liquids times 17,000 flowing B is 9,180 B/day of O&NGL's and $100,000 per flowing for the good stuff is 918M. Still a very nice deal for the buyer. NatGas upside for free!!!!
    27 Feb 2013, 09:27 AM Reply Like
  • bankstocks
    , contributor
    Comments (1371) | Send Message
     
    WestelK:

     

    I want to apologize formally. Looks like there may be a writedown of possibly a few hundreds millions on this JV deal. If you allocate 100,000 per flowing barrel for the oil and liquids there is not much remainder for the land here. I think they probably can massage the reserves numbers assigned to the JV lands and report no loss.

     

    There does seem to be a reasonable disconnect on the reserves numbers per the flowing barrel metrics I used. Possibly the Miss Lime is declining faster than modeled.............which is what SD has been leaning towards. The oil is drawn down faster so over time you are left with more gas as a % of production. Certainly changes the economics of the Miss Lime a bit. Could be a reasonable explanation of why CHK let go their more mature areas?

     

    More of the oil part of the EUR's from each well had already been produced!!!! The devil is in the details!
    27 Feb 2013, 09:37 AM Reply Like
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