smgilb

Chesapeake Energy Continues to Shore Up Its Balance Sheet

Good article. First & foremost, CHK got tarred through association w/Aubrey McLendon's margin call and liquidation of the stock. Not to mention that a forced sale played havoc w/the stock price.

Secondly, mgt. ran a little too aggresively versus cash flow available - hence the need for asset liquidations and partnerships. However, Aubrey did recognize value and went after it in a big way in the Haynevilles and Marcellus. These values have been demonstrated by public sales.

Contrary to those panicky parties that think CHK flirted w/bankruptcy thru loss of liquidity, reality was very different. Cash flow, protected by a strong hedging program, is and remains strong. CAPEX is flexible even after discounting contractual obligations for drilling rigs and service and held by production leaseholds. CAPEX will always be adjusted to the level of required corporate liquidity.

The street always worries about reliance on one off events, ie. assets sales as a source of cash vs. sustainable and ample cash flow BUT the bottom line is whether CHK is better or worse off by having been aggressive in its acquisition the Hayneville and Marcellus properties. I think the resounding answer is better off, by far.

CHK is incredibly undervalued versus hedged cash flows and assets in the ground. However, assets in the ground will be valued, for the time being at prevailing land costs which reflect current gas prices. This sort of stock is only for the patient investor (which I am). As long as there are occasional price spicks that present good hedging opportunities CHK will be OK and will thrive.

Furthermore, CHK's land purchases are probably over. Next step is the inflection point where the company is cash flow positivie and able to pay down debt, and eventually repurchase stock. The current meltdown will defer this event but not indefinitely.

As much as I am a believer in free trade, I'd rather see CHK adopt a poison pill since I want to capture the upside for myself and not yield it to some corporate purchaser. Aubrey has done a good job. He needs to do a better job of explaining his story. Less hype and more anlysis is the order of the day.

Chesapeake Raises $1.3B - More Marcellus, Perhaps?

The latter comment comes closer to the mark. The Marcellus acreage is HBP (held by production). In other words, you have to drill and produce to hold onto the "lease."