Bakken Update: Buyout Candidates For The Second Half Of 2012 [View article]
Michael:
Off point, but do you know the status of minerals under Lake Sakakawea ? Talked to a former Hidatsa-Mandan leader a couple of years ago and he said the tribes didn't own much under the Lake. He said the Corp of Engineers tried to claim that the minerals came to the Corp through the condemnation proceedings to secure the land for the lake. That didn't fly, but there are apparently title disputes over the lake minerals. My acquaintance said that a lot of the minerals under the lake are privately owned, but one would have to resort to the county records to determine how they were acquired.
Seems like someone would be pursuing leases on these minerals. Sensitive environmental issues, but with horizontal drilling from pads, tapping deposits under the lake should be possible without risking pollution. Back when directional drilling was a little more hit or miss, we drilled a couple of wells under a Corp lake in Oklahoma that made everybody happy. Now that I think about it, those minerals were owned by the Feds.
Chesapeake (CHK) is getting some face time at this week's Republican convention as it hawks compressed natural gas fueling stations; it sees Florida as a ripe market, as 62% of the state's electricity derives from nat gas. CNG fits well with GOP themes of energy independence and cost savings, while environmental protection could be CHK's mantra at next week's Democrat convention. [View news story]
Think I have this right, but don't remember the source: U.S. air quality has improved every year for the last ten years, a direct result of NG replacing coal in the generation of electricity. "There are none so blind as those who will not see." (Forgot who said that also.)
Chesapeake Energy: Still Not Worth The Risk [View article]
"As for this group to be referred to as pros and to believe they have a clue as to oil and gas operations and what companies are legitimate based on bogus financial data is a joke."
Quite true Slimback.
Back in the 1970's when oil went from $4/bbl to $40/bbl and limited partner drilling funds were in their heyday, practically every bucket shop on Wall Street had their own captive "General Partner" for their own drilling partnerships. I still choke a little when I think of the words of the introduction in their prospectuses which stated in so many words...We don't have any oil and gas operations; thus, we are free to objectively evaluate drilling opportunities offered by people in the industry and select the best for your participation. The going fee for this was about 20% off the top with the rest going into the most lopsided deals independent producers could think up. Every one of these ended in disaster. (I still have the list if anyone is interested.)
Chesapeake Energy: Still Not Worth The Risk [View article]
So easy to avoid all this. On day one, when we started an E&P company, we set up a separate corporation whose sole purpose was to receive all payments from the purchasers of our oil and gas production as "nominee"; then distribute it pursuant to the actual division orders. Easy to track, easy to audit, but extremely hard to play games with what rightfully belonged to others. Moreover, the "nominee" corporation wasn't a profit center and no charges were made by that corporation to anybody, whether royalty or third party working interest owners. We just viewed these costs, which were relatively minimal, as the cost of doing business honestly. (Could that be one of the reasons we never clicked with Wall Street and that I have never been invited to be a board member of any of these high flyers ???)
'Search' Assistance Should Be Facebook's Next Big Revenue Stream [View article]
Did some Facebook advertising last year to try and pedal a short treatise on understanding oil company financial statements. Facebook advertising is relatively cheap and you can set it up for specific targets (e.g. countries, groups, etc.) It directed readers to my webpage where for $12 you could download in PDF the 20 page, 10 graph pamphlet. I got hundreds of "likes" , comments in foreign languages and even some pictures from foreign residents, but no sales.
Heard a story just before Facebook went public (probably fiction) that some guy opened a new Pizza parlor, advertised on Facebook, got 300 "Likes." When he quizzed customers on opening night, only one had seen the ad.
When I go on vacation, I want to give my brain as well as my body a rest. Maybe people go to Facebook just to socialize and give their brains a rest.
Chesapeake Energy: Still Not Worth The Risk [View article]
Nothing proves the old saw that "One man's meat is another's poison" more vividly than the ongoing discourse about Chesapeake Energy. Think if one reads Daniel's "Conclusions" carefully, there is little to argue about. It is impossible to determine the effect of the VPPs and JVs on CHK's balance sheet. Moreover, the 10Qs don't have outside engineering evaluations as does the 10K. If you look at year end 2011, the picture isn't pretty:
Net CL + LTD...................... $ 14.5 Billion (2011 10K)
Difference............... $ 5.4 Billion
Average Market Cap............$ 12.7 Billion
To explore further Daniel's point concerning the unknown effect of the VPPs and JVs, consider the fact that the Future NCF (above) is comprised of 54% Proved Developed and 46% Proved Undeveloped (Part 1, Page 12, 2011 10K). How much of the Proved Developed went into the nine VPPs, and how much of the Proved Undeveloped was conveyed to the seven JVs on the books as of December 31, 2011 ? Moreover, why aren't the Financial Accounting Standards Board and the SEC demanding that these disclosures be made in a timely fashion ? Or, at the very least, why doesn't Wall Street research address the subject instead of simply re-publishing CHK's releases under their respective mastheads.
It would also be useful to know exactly where the $12.7 Billion in cash proceeds from the VPPs and JVs went, since there was little if any of the debt reduction promised. And shouldn't one expect some sort of spike from the $9 Billion of drilling carries ?
Chesapeake Energy Is A Great Retirement Fund Stock [View article]
Actually, Continental filled its hopper with worthless loans originated by Penn Square, which took down both banks. Back in the days before Unit banking was abolished, paving the way for "too big to fail" mega banks, small banks like Penn Square sold "participations" in their loans to larger banks. A few years prior to the Penn Square debacle, ex-oil people ran Continental's oil loan department and a more savvy oil loan group didn't exist. However, following the pattern that has become familiar in financial circles, technical people at Continental were replaced or placed under marketing people, the latter being seen by upper management as those who "could get things done."
Sorta like the way we manage as a country to end up with a government comprised for the most part of the dimmest bulbs in the populace.
Chesapeake Energy Is A Great Retirement Fund Stock [View article]
David: Don't intend to detract from your excellent article by raising the fear factor. As you point out above, it is about timing and I agree that if CHK can do what they have set out to do before things turn really ugly (hideous ?) they will reach safe harbor. My two cents is just a word of caution to those with less discernment who read SE, and my lingering concern for CHK's lack of operating efficiency at the field level. The chest beating that permeates CHK's communications notwithstanding, the Company's operational record is abysmal. This will not change until the Company brings in someone seasoned in "cradle to grave" field operations. The new Chairman will be consumed with financial matters and probably lacks the hands on experience to handle this in any event.
Chesapeake's Asset Sales Are Offsetting Declining Operating Income [View article]
Royalty trusts carry a couple of big and seldom mentioned unknowns:
1. How much of the distribution is actually a return of capital ?
2. Will the operator continue to operate the properties when the Royalty Trust's "carved out royalty" doesn't leave enough to the net working interest to cover operating costs, much less recurring well maintenance.
What To Watch For In Europe This Fall [View article]
Worth repeating:
" As investors, it would be prudent to keep abreast of Greece and Spain in the coming months and follow how the bond buying situation is progressing in Europe."
I would replace "prudent" will "absolutely essential" for the reasons pointed out in John M's article.
Draghi has stated that the ECB will do whatever is necessary to preserve the Euro. That could require purchasing sovereign bonds in the trillions. Are the Germans going to suffer all this while the French under Hollande go on picnics ?
Chesapeake Energy Is A Great Retirement Fund Stock [View article]
I consider myself a knowledgeable oil and gas person (a subjective view I admit). Only those knowledgeable oil and gas people who have gone through one or two boom and bust cycles in the business can truly fathom how quickly undeveloped leases can become worthless and how quickly high dollar drilling rigs begin to sell by the pound should slackening demand cause a hiccup in crude prices.... and the impossibility of servicing mammoth debt loads if financiers tire of roll-overs.
Icahn bought and T Boone bailed. Don't think they can both be right.
Chesapeake Will Tumble As 10-Q Sinks In [View article]
The oil and gas futures market truly is a zero sum game. No matter how successful you are at the casino, if you stay around you will leave empty handed.
Why Contango Oil & Gas May Have Peaked [View article]
Good advice from Contango:
The future is unknowable. We have good intentions but all of our projections and estimates will be wrong, and could be materially wrong. Wildcat exploration is expensive, speculative and potentially dangerous. An offshore spill or explosion would be enormously expensive. We have insurance but it may not be enough. You could lose your entire investment. Don’t be lazy – read our 10-Q’s, 10-K’s and press releases, and if you lose money - please no tears. “Don’t forget about risk-free and return free T-bills in your portfolio…After inflation and taxes you’ll likely only lose 5-10% of your investment.” - Contango V.P. Investor Relations
With 77% of Chesapeake's (CHK) estimates of its reserves produced by independent firms in 2011 vs. an average of 89% for nine rivals, investors are concerned that Chesapeake's figures are overly aggressive and may need to be written down in the future. Chesapeake is already known as the "number one cutter of reserves." [View news story]
Let's see. E & Ps of a certain size have to price their reserves at the end of each quarter using a twelve month trailing average for oil and gas prices (like marking your stock portfolio to the market). Oil and gas prices have fallen during the last 12 months; thus, a write down of reserves is to be expected. The exception would be a company that commissions an independent evaluation of drilling results every quarter, the addition of which might offset the write down.
Bakken Update: Buyout Candidates For The Second Half Of 2012 [View article]
Off point, but do you know the status of minerals under Lake Sakakawea ? Talked to a former Hidatsa-Mandan leader a couple of years ago and he said the tribes didn't own much under the Lake. He said the Corp of Engineers tried to claim that the minerals came to the Corp through the condemnation proceedings to secure the land for the lake. That didn't fly, but there are apparently title disputes over the lake minerals. My acquaintance said that a lot of the minerals under the lake are privately owned, but one would have to resort to the county records to determine how they were acquired.
Seems like someone would be pursuing leases on these minerals. Sensitive environmental issues, but with horizontal drilling from pads, tapping deposits under the lake should be possible without risking pollution. Back when directional drilling was a little more hit or miss, we drilled a couple of wells under a Corp lake in Oklahoma that made everybody happy. Now that I think about it, those minerals were owned by the Feds.
Chesapeake (CHK) is getting some face time at this week's Republican convention as it hawks compressed natural gas fueling stations; it sees Florida as a ripe market, as 62% of the state's electricity derives from nat gas. CNG fits well with GOP themes of energy independence and cost savings, while environmental protection could be CHK's mantra at next week's Democrat convention. [View news story]
Chesapeake Energy: Still Not Worth The Risk [View article]
"As for this group to be referred to as pros and to believe they have a clue as to oil and gas operations and what companies are legitimate based on bogus financial data is a joke."
Quite true Slimback.
Back in the 1970's when oil went from $4/bbl to $40/bbl and limited partner drilling funds were in their heyday, practically every bucket shop on Wall Street had their own captive "General Partner" for their own drilling partnerships. I still choke a little when I think of the words of the introduction in their prospectuses which stated in so many words...We don't have any oil and gas operations; thus, we are free to objectively evaluate drilling opportunities offered by people in the industry and select the best for your participation. The going fee for this was about 20% off the top with the rest going into the most lopsided deals independent producers could think up. Every one of these ended in disaster. (I still have the list if anyone is interested.)
Chesapeake Energy: Still Not Worth The Risk [View article]
'Search' Assistance Should Be Facebook's Next Big Revenue Stream [View article]
Heard a story just before Facebook went public (probably fiction) that some guy opened a new Pizza parlor, advertised on Facebook, got 300 "Likes." When he quizzed customers on opening night, only one had seen the ad.
When I go on vacation, I want to give my brain as well as my body a rest. Maybe people go to Facebook just to socialize and give their brains a rest.
Chesapeake Energy: Still Not Worth The Risk [View article]
Future NCF @ 10%...............$ 19.9 Billion (2011 10K)
Net CL + LTD...................... $ 14.5 Billion (2011 10K)
Difference............... $ 5.4 Billion
Average Market Cap............$ 12.7 Billion
To explore further Daniel's point concerning the unknown effect of the VPPs and JVs, consider the fact that the Future NCF (above) is comprised of 54% Proved Developed and 46% Proved Undeveloped (Part 1, Page 12, 2011 10K). How much of the Proved Developed went into the nine VPPs, and how much of the Proved Undeveloped was conveyed to the seven JVs on the books as of December 31, 2011 ? Moreover, why aren't the Financial Accounting Standards Board and the SEC demanding that these disclosures be made in a timely fashion ? Or, at the very least, why doesn't Wall Street research address the subject instead of simply re-publishing CHK's releases under their respective mastheads.
It would also be useful to know exactly where the $12.7 Billion in cash proceeds from the VPPs and JVs went, since there was little if any of the debt reduction promised. And shouldn't one expect some sort of spike from the $9 Billion of drilling carries ?
Chesapeake Energy Is A Great Retirement Fund Stock [View article]
Sorta like the way we manage as a country to end up with a government comprised for the most part of the dimmest bulbs in the populace.
Chesapeake Energy Is A Great Retirement Fund Stock [View article]
Chesapeake Energy Is A Great Retirement Fund Stock [View article]
Don't intend to detract from your excellent article by raising the fear factor. As you point out above, it is about timing and I agree that if CHK can do what they have set out to do before things turn really ugly (hideous ?) they will reach safe harbor. My two cents is just a word of caution to those with less discernment who read SE, and my lingering concern for CHK's lack of operating efficiency at the field level. The chest beating that permeates CHK's communications notwithstanding, the Company's operational record is abysmal. This will not change until the Company brings in someone seasoned in "cradle to grave" field operations. The new Chairman will be consumed with financial matters and probably lacks the hands on experience to handle this in any event.
Chesapeake's Asset Sales Are Offsetting Declining Operating Income [View article]
1. How much of the distribution is actually a return of capital ?
2. Will the operator continue to operate the properties when the Royalty Trust's "carved out royalty" doesn't leave enough to the net working interest to cover operating costs, much less recurring well maintenance.
What To Watch For In Europe This Fall [View article]
" As investors, it would be prudent to keep abreast of Greece and Spain in the coming months and follow how the bond buying situation is progressing in Europe."
I would replace "prudent" will "absolutely essential" for the reasons pointed out in John M's article.
Draghi has stated that the ECB will do whatever is necessary to preserve the Euro. That could require purchasing sovereign bonds in the trillions. Are the Germans going to suffer all this while the French under Hollande go on picnics ?
Chesapeake Energy Is A Great Retirement Fund Stock [View article]
Icahn bought and T Boone bailed. Don't think they can both be right.
Chesapeake Will Tumble As 10-Q Sinks In [View article]
Why Contango Oil & Gas May Have Peaked [View article]
The future is unknowable. We have good intentions but all of
our projections and estimates will be wrong, and could be
materially wrong. Wildcat exploration is expensive,
speculative and potentially dangerous. An offshore spill or
explosion would be enormously expensive. We have
insurance but it may not be enough. You could lose your
entire investment. Don’t be lazy – read our 10-Q’s, 10-K’s and
press releases, and if you lose money - please no tears.
“Don’t forget about risk-free and return free T-bills in your
portfolio…After inflation and taxes you’ll likely only lose 5-10%
of your investment.”
- Contango V.P. Investor Relations
With 77% of Chesapeake's (CHK) estimates of its reserves produced by independent firms in 2011 vs. an average of 89% for nine rivals, investors are concerned that Chesapeake's figures are overly aggressive and may need to be written down in the future. Chesapeake is already known as the "number one cutter of reserves." [View news story]