BSexposer

Time to Bail on Shale?

I don't pretend to know what Petrohawk or others are doing, but I am very familiar with CHK. They were able to issue debt at the very height of the credit crisis in February [link below], so I don't think the debt market shares your concerns about their cash flow. As far as piling cash into drilling, isn't that sort of their business model? These aren't supermajors - their purpose is to grow production at a fast clip and pay little to no dividends - and to increase their reserves. I think all the cash CHK has spent in the shale plays in the past 3-5 years has been money incredibly well invested, judging by the results of their JVs - do you really disagree?

www.chk.com/News/Artic...

Time to Bail on Shale?

I'm afraid you haven't reviewed CHK's operational budget for 2010 and 2011, which clearly shows they will generate plenty of FCF - you appear to completely disregard the impact of their drilling carries, which are the result of JVs entered into just in the past year [BTW, who cares what their FCF was 3 years ago? It only matters what it will be going forward]. In any event, buying leaseholds is optional - they don't need to add acreage if they don't want to - so these are not "capital expenditures" in the traditional sense (i.e., expenditures were are required to maintain the value of an asset). No offense, but you should do more DD before you pass judgment on an entire sector without knowing all of the facts.

Time to Bail on Shale?

Your analysis is faulty - conventional production will drop precipitously b/c of the low NG prices and low rig counts - thus, even though shale production will increase in 2010, overall production will decline. With the economic recovery continuing - and b/c of how cheap NG currently is - NG demand will pick up somewhat. Utilities are also switching over to NG as a fuel. Finally, I'm not sure where you get the idea that most NG producers are free cash flow negative - I know CHK is not. Nice try, but you've dropped the ball on this one IMO.

Plenty of Natural Gas: Exploration and Production Companies Keep Increasing Oversupply

mekats - the guy is like 19 years old - would you REALLY trust him for investment advice and predicting NG prices??? Let him gamble with options - this casino attitude isn't real investing.