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Oil Industry: Farewell, Good Old Days

valueinvestor123: you are correct. The original author was partially correct in his article that CHK and others are having cashflow problems but they are most certainly not out of cash. What they are is outspending their cash. That is a huge difference from being out of cash.

What can CHK do to avoid catastrophe? It is really very simple and its like what a huge number of U.S. consumers should do...STOP SPENDING MORE THAN YOU MAKE!!!! CHK was spending well north of 150% of its cashflow on drilling and leasing. Now all they have to do is cut back spending to where it is less than their cashflow and debt repayment. If they stopped drilling completely, which I don't think they should do, but if they stopped completely, they have more than enough cashflow to cover their debt payments, their ongoing overhead and operationse expenses and still have cash left over to put in the bank. Now what they should do is just continue to slow down their spending over the next 2 quarters. Possibly sell some assets, although this is a horrible time to sell. Maybe they can work a deal with some of the deep pocket cash hoarding major O&G's like Exxon or Chevron. They could get some cash either infused or they could get someone to pay for their drilling.

Remember, they have 2 deals with PXP and BP where those companies will be covering virtually all of their drilling expenses over the next year in the Fayetteville and Haynesville shale plays...2 of CHK's better plays. They may not be able to get that much leverage now a days, but they have really nice assets...undrilled acreage in key plays...and majors are looking for growth.

My prediction: as a shareholder in CHK I think these shares will at least double over the next 12 months OR CHK is bought out by one of the big guys! either way, if you've got a few years, this will be a good play.