# OKCpedia > Businesses & Employers >  Icahn Offers a Hedge for Chesapeake Energy

## BDP

Interesting:

http://online.wsj.com/article/SB1000...336142456.html

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## Doug Loudenback

I don't have a WSJ account so couldn't get very far. What's the gist of the article, BDP?

On Edit: I did find this interpretation here: http://247wallst.com/2010/12/06/is-c...hk-lgf-bx-dyn/

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## pickles

Not surprising.

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## Pete

CHK has a ton of debt, negative cash flow and gets 95% of it's revenue from natural gas which is really in the dumper.

They've had to keep issuing stock to fund their continued expansion and Icahn has been buying it up.

His m.o. is to acquire a significant number of shares, then lead other shareholders in revolt of the top management and board, usually when he thinks they are undisciplined in their spending and debt accumulation -- areas where CHK has been criticized in the past.

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## BDP

> I don't have a WSJ account so couldn't get very far. What's the gist of the article, BDP?


Sorry about that. I read it in the hard copy and just googled the headlines to get the link. Sorry it didn't work.

Pete summed it up well, but if you want to read it, try the link at the top of this SERP:

http://www.google.com/search?hl=&q=I...US398&ie=UTF-8

If not here's a highlight:

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## Spartan

Icahn targeting Kerr McGee was also the start of a downward spiral in losing a different company. Great guy.

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## Swake2

This is profoundly bad news. But not unexpected.

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## Pete

Actually, Icahn usually pushes towards the things that CHK is already starting to do itself:  reign in acquisitions, sell assets (or in this case, enter into several JV's) and drive down the debt.

However, I'm sure Icahn hates the way CHK spends money and I hope they hurry up and finish the development they have underway because it may be winding down in the near future.


Their property acquisitions and development have been mostly a great boon to that part of OKC but there is no way they can justify most of it from a business standpoint.

I calculated today that they have spent more than $55 million just to acquire property in that Whole Foods triangle, and that doesn't include buying out leases, swapping other properties and demolition -- not to mention construction.

Effectively they paid $2 million an acre (!!) for those 27 acres.  In total, that is almost three times the last assessed / sold values -- and that was just to tear it all down and get the underlying dirt.

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## MustangGT

Icahn is VERY BAD news.  Coporate raider who claims to be looking out for the stockholders.  He looks out only for his own pecuniary interests.

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## adaniel

Not surprised one bit. 

From my standpoint just in the O&G field, I know that Chesapeake has either letting leases expire or selling off some of their deep rights in Western Oklahoma (the Cana/Woodford Shale Play which is kind of the new hot gas play right now) at fire sale prices over the past year or so; as in less than a quarter on the dollar for that they were aquired for in the first half of this decade. That shows me that they simply do not have the cash flow to complete deep wells, their bread and butter business...a wee bit concerning from an OKC standpoint.

The funny thing is that they're plenty of companies that are out there drilling wells and making _some_ money. Profits can be made in this enviornment if you keep overhead low, i.e. aren't having a ton of debt hanging over your head. And just casual observation from looking at OCC filings from 2007 to now they have gone from the biggest driller in the state to probably not even top 5. I can't speak personally for their situation in other states, but I do know they along with other companies have hit a buzzsaw in the Marcellus Shale are (WV/PA/NY) over concerns on hydraulic fracturing. Companies that are in sound industries yet still have to sell off assets or stocks to pay bills are prime takoever targets. If Ican whips up enough discontent with shareholders and gets his grubby little hands on CHK its bad news for OKC. He is Boone Pickens without the charm.

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## KTB

As long as CHK continues to issue stock to provide income they will be targets.  They will just continue to increase their debt and further dilute their value.  They need to decrease spending, buy back some stock, and focus on their core product which is not RE investing/development.  Although great for the city, their development projects will probably never be in the black.  CHK is ripe for a take over and Icahn isn't the only one with eyes on it.  All of the negative press concerning CEO pay and other expenditures by the board (purchasing AM's map collection) isn't helping either.

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## onthestrip

I agree with the last few posters.  Im not too knowledgeable on their O&G businesses but I have never heard great things about their practices, unless of course you are talking to an employee.  However, knowing a little more about the real estate business I can say what theyve done around their campus as far as acquisitions and development go, is quite reckless.  Im surprised there has never been much shareholder rumblings about Chesapeake Land Co. Then again, shareholders did allow a $90+ million bonus to Aubrey after a year when the company's stock tanked.

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## Spartan

The interesting thing is that if Chesapeake has to abandon its development objectives, I don't see why they couldn't strike a deal with a developer for all the land it owns. Free land. They could just give it to a local developer with the right intentions, such as Humphreys, and help that developer build himself up as well, which will benefit downtown. And it's not like their development projects are even intended to break even anyway.

Definitely agree though that it may be best for OKC if Chesapeake focus on being CHK right now.

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## Pete

The good news from a real estate development standpoint is they have already acquired just about everything they want/need.  What concerns me is their ability to develop it -- something that has been a risk from the word go.  At least they've built some things back...  If Icahn came calling a couple of years ago we might have nothing but a bunch of vacant buildings and scraped lots.

As Spartan said, they may very well need to partner with a real estate development company.  They own those 27 acres around WF, plus about another 30 with the various NH Plaza properties.  Then, they have hundreds of acres east of their campus.

If I was a major stockholder, I'd want management focused on running their core business.  They've already created a great environment for their employees.

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## MikeOKC

Icahn is a guy you love to hate. However, an Icahn is what CHK needs right now. He's not out necessarily to takeover CHK. He raids poorly run companies in an effort to gain the influence to change their direction for the better, which improves the company, which improves the stock price --- which lines the pockets of Carl Icahn. In other words, he sees potential of a stock price bump with major changes and with 2.5% of the company already, Carl Icahn will soon have _influence_. In the Kerr bloodline or not, it's been my opinion for some time that AM cannot survive a truly independent Board of Directors. It's filled now with buddies and protectors and Icahn's raiding can change that - in a heartbeat.

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## bombermwc

Yeah but one thing he also does is sell off parts of companies until they are a shell of what they once were. That also means closing offices. Hell, look at what he did with KMG. Everywhere he goes, you see him splitting companies up and making a mess.

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## NickFiggins

It's not as if something along this line was expected. The business practices at CHK are unsustainable in the long term, and the debt load makes them quite venerable to a takeover. With Nat Gas prices at sub $5 for such a long period, their aggressive nature didn't make a whole lot of sense. The best case scenario for OKC would be a merely a removal of AM, and getting CHK's balance sheet in line. Its interesting to look at the difference in how Devon and CHK expand as far as real estate; Devon with cash and CHK with a mountain of debt.

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## Spartan

Well it seems almost like the whole point in Aubrey's Nichols Hills makeover vision is to create a work/play/live environment where CHK employees live and play where they work, and try and build off of that creative energy that powers Google--if he does a good enough job, maybe he thinks any potential takeover attempt will want to at least keep the company where it is.

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## Pete

Google bought most of it's campus from a failing Silicon Graphics...  I interviewed with SGI a bunch of times on that site and apart from some trails that tie into the surrounding public spaces, there isn't really much there other than office buildings and the typical fitness centers.  Google has added more buildings since the initial purchase but hasn't developed any sort of real estate to be used as an investment.

I've never known of a company trying to rebuild an entire community around it's HQ through private real estate development...  And spend in the neighborhood of a billion dollars to do it.  AND in an area that was already considered one of the nicest areas in town to begin with.

If you were an investor, it would be very hard to justify this massive expense.  Sure, partner with the community to make it a better place to live and rely on the fact you are employing thousands of well-paid people to drive new businesses in the immediate area to cater to them.

CHK doesn't seem to have much problem getting quality people and they have yet to really do much with the huge majority of the property they have acquired.  An easy argument to stop spending on real estate development is that they already have a fantastic campus with tons of amenities and the surrounding area is plenty nice.  Instead of spending hundreds of millions on developing retail and hotel space, how about getting your business out of debt and turning a profit?


Personally, I'd love to see them see out their development vision.

But I can just imagine AM standing in front of Icahn and a bunch of furious stockholders who have been watching their shares go down and flounder and trying to justify buying properties for three times their value in order to tear them down and build something pretty near your HQ.

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## MikeOKC

...A group of 17 billionaires joined “The Giving Pledge,” a long-term philanthropic endeavor organized by America's two wealthiest citizens, Warren Buffett and Bill Gates, promising to give away most of their fortunes.

Among those who announced their participation today were Facebook founder Mark Zuckerberg,* investor Carl Icahn*, former junk bond kind Michael Milken and film maker George Lucas.

http://newsok.com/oklahoma-city-bill...#ixzz17l48KNqF

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## Spartan

> Google bought most of it's campus from a failing Silicon Graphics...  I interviewed with SGI a bunch of times on that site and apart from some trails that tie into the surrounding public spaces, there isn't really much there other than office buildings and the typical fitness centers.  Google has added more buildings since the initial purchase but hasn't developed any sort of real estate to be used as an investment.
> 
> I've never known of a company trying to rebuild an entire community around it's HQ through private real estate development...  And spend in the neighborhood of a billion dollars to do it.  AND in an area that was already considered one of the nicest areas in town to begin with.
> 
> If you were an investor, it would be very hard to justify this massive expense.  Sure, partner with the community to make it a better place to live and rely on the fact you are employing thousands of well-paid people to drive new businesses in the immediate area to cater to them.
> 
> CHK doesn't seem to have much problem getting quality people and they have yet to really do much with the huge majority of the property they have acquired.  An easy argument to stop spending on real estate development is that they already have a fantastic campus with tons of amenities and the surrounding area is plenty nice.  Instead of spending hundreds of millions on developing retail and hotel space, how about getting your business out of debt and turning a profit?
> 
> 
> ...


Well I'm not sure it was ever intended as an investment, Aubrey would say he literally thinks his company will continue to grow so fast that they need the land for more office space. The problem is that he was too nice to all of the surrounding property owners who really owe Chesapeake a TON, which sucks because some of them are very ungrateful and still ticked about being payed 3 times what their land was worth and then land-swapped. Virtually every business he land-swapped with now is in a MUCH better space..ahem Pearl's Graveside..

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## Pete

Building Classen Curve & Whole Foods and buying Nichols Hills Plaza (have submitted proposals to rebuild as shopping/housing) and most their other properties has nothing to do with growing their campus.

And they've said for quite a while they want to build housing on the property east of their HQ.


Don't get me wrong, I'm all for this as long as they see it through.  But I've said from the beginning it was hard to justify from a business perspective and I was worried either economics or shareholders were going to shut the whole thing down before they get anywhere near what they had intended.

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## SkyWestOKC

My friend who works up there says the amount of waste (monetary) is astounding. They'll let you pay for just about anything through the company card as long as you can find a remote link to the business and it will be approved. Plane ticket to Vegas for the weekend? "Oh yeah, I was meeting a client" For them that's close enough and they won't ask any questions as to who, or what they, the "client", were interested in. 

He said it's comparable and in some cases worse than government waste.

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## soonerguru

> My friend who works up there says the amount of waste (monetary) is astounding. They'll let you pay for just about anything through the company card as long as you can find a remote link to the business and it will be approved. Plane ticket to Vegas for the weekend? "Oh yeah, I was meeting a client" For them that's close enough and they won't ask any questions as to who, or what they, the "client", were interested in. 
> 
> He said it's comparable and in some cases worse than government waste.


I can assure you that government employees cannot spend money like this. There is no way to spend government money like this -- at least at the state level.

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## SkyWestOKC

I mean, not in that exact form. But the government waste is comparable. At Tinker, you get paid for a full hour's worth of work if you are clocked in for 1 minute of that hour. If your supervisor allows you to leave one hour early, they'll let you stay on the clock until 1 minute after so you get credit for the full 60 minutes.

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## Spartan

I need to get a job with Chesapeake, while it lasts.

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## Steve

> I can assure you that government employees cannot spend money like this. There is no way to spend government money like this -- at least at the state level.


Um friend... in higher ed, it happens all the time. I know this to be true.

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## Spartan

Wasn't there an OSU secretary that last year racked up over $90,000 in frivolous personal expenses on a credit card?

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## mugofbeer

Being in the investments business, the articles are spot on.  Unfortunately, like Jerry Jones is to football, Carl Icahn is to finance - simply out to make a buck and to hell with the community or the employees.  Yes, Chesapeake could be a better run company but Aubrey McClendon has learned a lot of lessons and is improving his overall management ability.  I hope he is smart enough to have a plan to fend Icahn off from his very possible takeover or split up desires.  The problem is, if its not Icahn, other firms will be waiting to take over a financially weakened Chesapeake if there is a fight.

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## soonerguru

To me this illustrates why I would never choose to work for a publicly traded company.

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## adaniel

> To me this illustrates why I would never choose to work for a publicly traded company.


I've worked for a family owned private company in which the family was as greedy and ruthless as any spoiled Wall Street goon. Plus there was a lot of corporate "inbreeding," lots of ideas and leadership being recirculated 30 and 40 years after the fact. Being public does introduce a certain level of outside influence which, in moderate quatities, can keep things from getting stale within a business. 

The problem comes when companies like CHK, in a effort to raise capital quickly, tout themselves as a hot, high growth stock, and produce crazy growth figures in the first couple of years. At one point they had a pitch that was very Penn Square Bank-ish. "Gas prices will keep going up, up, up!" CHK was always a popular pick on "Fast Money" and "Mad Money" and other financial infotainment shows from about 2005-2008. The thing is people who watch those shows could care less about the long term health of a company (No offense to anyone who watches these shows, but that's just my own experience). Its about make money tommorow, to hell with long term. These people get irritated when a company like CHK can't make money like that all the time. It is at the mercy of a single commodity price after all. Suddenly you have a management team that must respond to this sort of shortsided attitude.   

There are several deep gas drillers out there that are publicly traded, making a (small) profit, and doing alright. You will have never heard their names mentioned on Fast Money, but unlike CHK they haven't completely sold themselves out to Wall Street either.

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## yessir69

I have thought for quite a while that CHK is starting to smell a little like Enron.  I can only hope I'm way off base.  It would devistate this city.

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## wsucougz

Chesapeake has done $12 billion in joint ventures in the last several months, with more on the way.  Not sure about Icahn's overall motives, but their financial position appears to be on the upswing, particularly with the shift toward oil.  Ongoing rumors of their demise appear to be greatly overexaggerated.

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## OKCTalker

From "Wall Street," and Gordon Gekko's speech at the annual meeting of Teldar Paper: 

"Teldar Paper has 33 different vice presidents each earning over 200 thousand dollars a year. Now, I have spent the last two months analyzing what all these guys do, and I still can't figure it out. One thing I do know is that our paper company lost 110 million dollars last year, and I'll bet that half of that was spent in all the paperwork going back and forth between all these vice presidents. The new law of evolution in corporate America seems to be survival of the unfittest. Well, in my book you either do it right or you get eliminated. In the last seven deals that I've been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars. Thank you. I am not a destroyer of companies. I am a liberator of them! The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA. Thank you very much."

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## Pete

Just to be clear, I'm not predicting the demise of Chesapeake Energy.

I do believe, however, that change will be somewhat forced upon them and that their spending is likely to be curtailed -- maybe to a significant degree.

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## wsucougz

> I do believe, however, that change will be somewhat forced upon them and that their spending is likely to be curtailed -- maybe to a significant degree.


I would agree with you there.  I wonder if the idea is for Chesapeake Land Co. to get to a point where it can use its own assets and income to fund future operations.  Maybe that's the workaround.

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## onthestrip

> I would agree with you there.  I wonder if the idea is for Chesapeake Land Co. to get to a point where it can use its own assets and income to fund future operations.  Maybe that's the workaround.


Ha. Have you seen the inflated prices they pay for real estate?  They are decades away from CHPK Land Co being able to fund future operations.

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## wsucougz

> Ha. Have you seen the inflated prices they pay for real estate?  They are decades away from CHPK Land Co being able to fund future operations.


Ha.  Yep.  Interesting, why don't you explain to me how the money flows between these various business entities including any loans, tax credits, etc.  I honestly have no idea and the thought was pure speculation on my part.

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## onthestrip

I have no idea about the inner workings of chpk and chpk land co either.  What I do know is is that theyve paid inflated prices for many properties that arent income producing, and the ones that were they have seemed to let leases expire and let them go vacant.  Nichols Hills Plaza is an exception, but what they paid and the income it brings in does not make any real estate financial sense.

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## wsucougz

> I have no idea about the inner workings of chpk and chpk land co either.  What I do know is is that theyve paid inflated prices for many properties that arent income producing, and the ones that were they have seemed to let leases expire and let them go vacant.  Nichols Hills Plaza is an exception, but what they paid and the income it brings in does not make any real estate financial sense.


I would agree with you in terms of not making any real estate financial sense.  What I'm thinking is maybe a guy like Icahn doesn't care about that entity as long as Chesapeake itself doesn't continue to funnel money into it - if Icahn's influence takes a couple years to really materialize, several more income generating properties will have come online.  The properties are certainly only worth a fraction of what was paid for them, but maybe they were purchased outright, therefore, all the money they generate could go back into Chesapeake land co. operations.

On the other hand, that's probably not realistic at all.  The money probably just funnels back down into the corporation, who paid for it all anyway.

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## Pete

In the end, it all comes out of the same checking account.

CHK Land Co. may be a separate entity, but it's wholly-owned by CHK and it's assets/profits/loss all roll-up into the publicly traded company.


Now one thing is true:  regardless of what they have paid to date, that is money already spent.  And perhaps they can make a bit of a business case for developing some of that property into income-producing retail and the like.

But just this last week they bought Cimmaron Place, a small office building *north* of 63rd and paid about 3x the assessed value.  Not long before that, they paid millions for a tiny parking lot adjacent...  They are averaging about $2 to $4 MILLION an acre!!  (They paid, on average, about $2 million per for the 28 acres around WF and about $4 million per for the 20 acres of land under and around NH Plaza.)  And in all cases, the buildings have been tear-downs in the longer term and increasingly, not part of their core campus.

They already own about 80 acres east and southeast of their main campus (which is about 40 acres now) and have all the room in the world to expand -- not to mention about 60 acres in NH Plaza, WF Triangle and Classen Curve.  I know their vision is to completely redevelop everything within about a half a mile from their campus and that is the part that makes very little business sense, especially given the money they have been spending.

As much as this is generally good for OKC, I can't imagine investors allowing this to continue much longer, especially since CHK is losing money, in debt, and has a stock price that has been floundering.  Not to mention doing business almost exclusively in a commodity that is languishing.


I wish CHK would just finish up the development they have underway and stop buying and demolishing buildings.  It's just a matter of time before someone (probably Icahn) forces all this to end and there are already a bunch of empty fields where condos, apartments and office buildings once stood.

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## Pete

BTW, the figures I have been quoting in terms of acreage and prices paid are specific calculations I've done with data from the County assessor's website.

I started tracking this a few years ago in an effort to piece together what they were doing...  And now I just keep a spreadsheet and add to it when there is a new transaction.

I know it's a bit obsessive but I find what they are attempting to be fascinating.  I really hope they are able to accomplish their grand plan but I've been worried all along that it just won't fly in a publicly-traded company and that we are going to be left with big holes in what has always been an excellent area of town.  I'm also concerned that they are going to drive themselves into the ground and that would be borderline catastrophic for OKC.

I hope my worry turns out to be unjustified!  And I give Chesapeake tremendous credit for giving so much back to the community and having the balls and long-term vision to even attempt something like this.

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## brownb01

Oh gezz....where do you all get some of this crap?!?

First off...there is no fire sale, or ever was.  What assests they have sold...have been at HUGE profits!  HUGE!  They will continue to do this.
They are not reducing drilling.  They are the LARGEST driller of in new wells in the entire US!
They have not issues new common stock in several years.  They are not using stock sales as captial.
They have vowed to reduce debt, and have done so this past year.

While NG prices are down...you are forgetting their HEDGES!  Do you all even know what this means?!
Whilte NG prices are down...you are forgetting that they are making a huge shift to OIL!  Have you seen thier 2011 investor presentation?  LOTS of OIL!

Do you all watch the employee count?  It continues to rise!  Where are they going to put these people?  Do you think they can continue to cram people into buildings?  They are expected to grow by 20% in 2011!!!!  Where are these folks going to go?  Aren't they leasing buildings because they don't have the room?  

Don't worry because they are building and growing!  you need to worry when this STOPS!!!

You all should research some before you start spuing crud.

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## Rover

All I know is that I have been looking for office space in nice buildings and everywhere I go I seem to be competing against Chesapeake for space.

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## Pete

I haven't seen any criticism or concern over them building space for their employees -- that's not even part of this discussion.

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## onthestrip

> Oh gezz....where do you all get some of this crap?!?
> 
> First off...there is no fire sale, or ever was.  What assests they have sold...have been at HUGE profits!  HUGE!  They will continue to do this.
> They are not reducing drilling.  They are the LARGEST driller of in new wells in the entire US!
> They have not issues new common stock in several years.  They are not using stock sales as captial.
> They have vowed to reduce debt, and have done so this past year.
> 
> While NG prices are down...you are forgetting their HEDGES!  Do you all even know what this means?!
> Whilte NG prices are down...you are forgetting that they are making a huge shift to OIL!  Have you seen thier 2011 investor presentation?  LOTS of OIL!
> ...


Your paycheck has to be signed by Aubrey, lol.

Ill admit I dont do much research on CHPK, usually just read things in papers/publications.  But what these things do tell me is that they have enormous debt every year, have had to issue tons of non-common stock the last couple of years and had to bail out Aubrey by buying vintage maps and giving him a $90+ million bonus in a year when the company stock crashed (as well as his personal fortune).  Sure, they could be back on a positive footing but I read and see enough to make me worry whether they can continue the things they are doing.

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## blangtang

"A major oil company could pay a pretty hefty premium to the current share price of Chesapeake and still get these assets at a sizable discount to what virtually every company in the industry is willing to pay for them in arm’s length transactions.

Somebody should step up and take this company out. Maybe good old T Boone has one more exciting play left in him. "

http://www.gurufocus.com/news.php?id=117256

Not much of an idea about the source, but this is a follow on to the stories in the wsj and icahn recently.  Just to show what some are thinking about CHK...

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## Rover

So, even though many on here claim that Chesapeake has tremendously overpaid for assets, including its land, the financial analysts believe that the stock prices don't reflect the true value of the assets themselves.  So the investing public has it all wrong.

Years ago I was a stock broker.  Things haven't changed much.  Stock is valued on net income last quarter but the creation of wealth over time is under-valued.  If guys like Icahn or Pickens can find the right companies they destroy the creation of value in favor of short term looting.  Makes them alot of quick money and destroys companies and communities.

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## Pete

Have never seen anything that says it's real estate investment is worth more than (or even anywhere near) what they paid.  When they talk about assets, they're talking about drilling equipment and mineral rights.

And if anything, the fact their stock price is far lower than the sum of it's assets is very, very bad.  It means someone is going to buy them and sell off the pieces, which is exactly what corporate raiders like Icahn and Pickens do.

Investors are simply not willing to pay more for the stock because the company is not making a profit.

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## brownb01

I for the life of me can't figure out why you all keep putting Boone and Icahn in the same category.  They aren't even close.

Yes, Icahn...bad, corp raider.  Boone on the other hand is not. It's actually too bad his bid for Phillips didn't go through several years ago.  If it had...Phillips would still be an OKLAHOMA based company!  Boone is all about Oklahoma and making it a better place...and yes, he wants to make money doing it.  Nothing wrong with that.

Did you know Boone and McCleddon are buddies?  If Boone ever makes an offer...it will be a competive bid against someone else.

And...on top of that, CHK has positioned themselves nicely to warrant off a take over.  The stock has been much lower.  There are lots of reasons there hasn't been a bid.

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## brownb01

> Your paycheck has to be signed by Aubrey, lol.
> 
> Ill admit I dont do much research on CHPK, usually just read things in papers/publications.  But what these things do tell me is that they have enormous debt every year, have had to issue tons of non-common stock the last couple of years and had to bail out Aubrey by buying vintage maps and giving him a $90+ million bonus in a year when the company stock crashed (as well as his personal fortune).  Sure, they could be back on a positive footing but I read and see enough to make me worry whether they can continue the things they are doing.


LOL!  actually...no he does not.  I don't work for CHK.  I just read.

and again you are mistaken...they have not issued common stock in the past couple of years.  Again...get your facts straight.  And if you think you gets facts from media...you might want to start looking things up yourself.

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## Pete

> I for the life of me can't figure out why you all keep putting Boone and Icahn in the same category.  They aren't even close.


The article linked above references Pickens as someone who has done this sort of thing in the past, so you might want to take up your gripe with the author as well.

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## onthestrip

> LOL!  actually...no he does not.  I don't work for CHK.  I just read.
> 
> and again you are mistaken...they have not issued common stock in the past couple of years.  Again...get your facts straight.  And if you think you gets facts from media...you might want to start looking things up yourself.


Again...I said non-common stock.

$1.6bil in senior notes were offered this last August.
http://www.newsok.com/article/3483879

$1bil senior notes were offered in Jan of 09
http://www.newsok.com/article/3341482

$1.2bil in May of 08
http://www.newsok.com/article/3246856

And 2.5 years ago they did issue common stock, 20 million shares.
http://www.newsok.com/article/3221475

And they also had to make a $2bil deal with a Chinese company this year to be able to fund operations.

Im not looking to argue and Im not even sure what all this stuff means but just wanted to get my _facts_ straight.

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## brownb01

yes...correct, non-common stock.

Do you know why they did that, and what it was used for??

It was not to fund operations.

Pay attention to debt to cap ratio...it's going down.  This is good.

The deals they have been working are also very very good.  Basically getting all the lease land for free.

Since you don't understand what most of this stuff means...maybe you should not speak to it.  :Smile:

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## onthestrip

Thanks chesapeake cheerleader, keep keeping me informed

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## ou48A

To some extent CHK is trying to switch some of its focus from shale gas plays to shale oil plays.
They recently bought 24K acres from SSN in the Niobrara oil shale. Over the long run this change IMHO should help, providing they haven’t over paid for leasing.

Several years ago CHK sold a massive acreage position in the Bakken shale oil play at very reasonable prices to CLR. 
This acreage is now proving to be a real big bonanza for CLR.   
Their have been recurring rumors that XOM might be interested in certain CHK assets. 
Obviously the better CHK is managed the better it is for OKC.

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## TStheThird

> I for the life of me can't figure out why you all keep putting Boone and Icahn in the same category.  They aren't even close.
> 
> Yes, Icahn...bad, corp raider.  Boone on the other hand is not.


I agree that Boone and Icahn are different cats, but Boone followed him into the Yahoo fight two years ago.  

http://dealbook.nytimes.com/2008/05/...hn-into-yahoo/

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## Rover

> The article linked above references Pickens as someone who has done this sort of thing in the past, so you might want to take up your gripe with the author as well.


Boone is one of the original raiders.  Other than for OSU, he is all about Boone and making money.  And if I was OSU, I'd watch out.

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## Rover

Chesapeake is making this all sound like they welcome Mr. Icahn to their company.

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## Spartan

> Boone is one of the original raiders.  Other than for OSU, he is all about Boone and making money.  And if I was OSU, I'd watch out.


Yeah but Boone originally does have oil field experience, and is an oil man before being a corporate raider. Now he's gone back to being an energy guy, but even when he was a corporate raider he was still an oil man. It's true that Icahn's focus is the oil industry but I'm not sure he's a bona fide oil man like Boone. Although OSU should watch out just because now their money is tied up in such a volatile business, as they learned already, and they still can't do anything about it. I think Boone has more money than he knows what to do with and also knows how advanced his age is, so he's going down the list of entities he can dump his money off on now...might as well.

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## Rover

> Yeah but Boone originally does have oil field experience, and is an oil man before being a corporate raider. Now he's gone back to being an energy guy, but even when he was a corporate raider he was still an oil man. It's true that Icahn's focus is the oil industry but I'm not sure he's a bona fide oil man like Boone. Although OSU should watch out just because now their money is tied up in such a volatile business, as they learned already, and they still can't do anything about it. I think Boone has more money than he knows what to do with and also knows how advanced his age is, so he's going down the list of entities he can dump his money off on now...might as well.


Ah, you need to speak to some people who actually know Boone, especially from his Amarillo days.  If you think he is benevolent then you just don't know the man and his background.  Boone is all about Boone and knowing how to hijack oil companies doesn't make him a friend of Chesapeake or OKC.

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## Spartan

Well I didn't defend him. He's just like anyone else from Texas who's big rich.

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## ou48A

> Ah, you need to speak to some people who actually know Boone, especially from his Amarillo days.  If you think he is benevolent then you just don't know the man and his background.  Boone is all about Boone and knowing how to hijack oil companies doesn't make him a friend of Chesapeake or OKC.


You’re 100% correct about Pickens and his Amarillo days.

I worked for company that Pickens green mailed and while the company had management problems they were so weakened by Pickens they were bought out by another company and hundreds of very good jobs were lost.

For a few years a distant relative on my wife’s side of the family lived part time in the same condo complex in Amarillo as Pickens. Among other things she also owned a 14,000 acre ranch (with oil & gas) that bordered part of the Pickens ranch north of Pampa TX. This lady was very sophisticated and extremely well connected to State and national political powers at top levels. The history she had lived was fascinating to me. Before she died in the late 80’s she told me that she couldn’t think of anything good to say about T. Boone Pickens.

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## G.Walker

After all that talk, Icahn ends up investing nearly $1 billion in Chesapeake:

http://www.newsok.com/chesapeake-sto...adlines_widget

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## Pete

Chesapeake stock surges as Icahn boosts stake
Published: December 21, 2010
Shares in Chesapeake Energy Corp. surged Monday on word that activist billionaire Carl Icahn had boosted his stake in the company.

THE SPARK: Icahn filed a document with the Securities and Exchange Commission on Friday saying he raised his stake in Oklahoma City based Chesapeake to more than 38.6 million shares, or *5.8 percent.* He paid $945.9 million for the shares, including commissions and premiums for the options to buy the shares.

THE BIG PICTURE: Chesapeake Energy is a leading U.S. producer of natural gas. Its operations are focused on discovering and developing unconventional natural gas and oil fields onshore in the U.S. It owns positions in the Barnett, Fayetteville, Haynesville, Marcellus and Bossier natural gas shale fields.

New technology has created a rush toward the untapped gas fields of the U.S., which have the potential to reshape the energy profile of the country.

In the filing, Icahn said he acquired the shares in the belief that they were undervalued. He also noted *he intends to continue to hold conversations with Chesapeake management to discuss its business operations and how to maximize shareholder value.*

Jeff Mobley, Chesapeake's senior vice president for investor relations and research, said company officials have talked to Icahn several times, including as recently as Friday afternoon.

We ... are pleased to welcome him as one of our largest shareholders, Mobley said. We believe his investment is evidence of his appreciation for our asset quality and for the strategic direction of the company, in particular our recently updated 2011 strategic plan, which features strong growth in oil production, best in-industry hedging, significant asset monetizations and reduced leasehold spending.

SHARE ACTION: Chesapeake Energy shares gained $2.06, or 8.8 percent, closing at $25.36. Shares have traded between $19.62 and $29.22 in the past 52 weeks.


Read more: http://newsok.com/chesapeake-stock-s...#ixzz18lTJgORS

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## Pete

By JIM POLSON Bloomberg News 
Published: 12/21/2010**2:25 AM 
Last Modified: 12/21/2010**5:23 AM

Shares of Chesapeake Energy Corp. rose the most in seven months after billionaire investor Carl Icahn boosted his stake in the company and said he was talking to management about increasing its value. 

Oklahoma City-based Chesapeake rose $2.06, or 8.8 percent, to $25.36 on the New York Stock Exchange, the biggest increase since May 4. Before Monday, shares of the nation's second-largest natural gas producer had fallen 10 percent this year. 

Icahn increased his ownership to about 5 percent from 2.5 percent and is holding talks about raising the share price, according to a filing after the close of regular trading Friday. *That would make Icahn the second-largest shareholder* behind Southeastern Asset Management Inc., which had a 12.4 percent stake as of Sept. 30, according to data compiled by Bloomberg. 

"We have met with Carl on several occasions, including as recently as Friday afternoon," Jeffrey Mobley, Chesapeake's senior vice president for investor relations, said Monday in an e-mail. "His investment is evidence of his appreciation for our asset quality and the strategic direction of the company." 

Chesapeake CEO Aubrey McClendon has announced $3.8 billion of asset sales this year to fund the company's switch to more oil production. Crude prices are 16 percent above the previous five-year average, and an oversupply of natural gas has driven prices down 36 percent below the average. 

Chesapeake announced Dec. 14 that it has hedged 90 percent of its expected 2011 gas production at an average price of $5.84 per million British thermal units on the New York Mercantile Exchange. That's 33 percent above this year's average price. 

Icahn, 74, agreed Dec. 15 to buy Dynegy Inc., the nation's third-largest power producer, for $665 million, or $4.7 billion including assumption of debt. That's 10 percent more per share than an offer by Blackstone Group LP that shareholders rejected Nov. 23. If successful, the purchase would be Icahn's largest in 10 years, including debt, Bloomberg data show. 

The Dynegy transaction is opposed by Seneca Capital, the second-largest holder of Dynegy shares. 

Exxon Mobil Corp. is the largest U.S. gas producer, according to the Natural Gas Supply Association. 

Read more from this Tulsa World article at http://www.tulsaworld.com/business/a...1_CUTLIN590758

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## Pete

The irony of all this is that until two years ago and the now famous margin call, McClendon was the largest CHK shareholder but he was forced to sell almost the exact same number of shares that Icahn recently bought.


All this will either make CHK stronger and better-managed or Icahn is going to blow them apart and sell off the pieces, as it's been well established their assets are much more valuable than the company itself.

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## Rover

What is interesting in this and these types of situations is that the raider is not interested in long term growth, only immediate profits.  Chesapeake has accumulated a ton of assets which their current investors do not fully appreciate and are undervaluing.  So, for a short term kick, guys like Icahn come in and sell off the assets.  This would be like buying a car that appreciates in a year or two and then letting your brother in law sell it, leaving you with no transportation and sitting by the side of the road as he drives off in the car he came in.  This is classic raiding and pillaging.

Now, I will take it all back if he is actually looking at it as a long-term play.  Just count me as skeptical.

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## ou48A

There is one venture that might bale out CHK and other natural gas Co.

Perhaps Carl  Icahn knows of this potential value and feels that CHK is in a unique position to capitalize on an opportunity.


Several years ago when natural gas prices were very high and before most understood how significantly the market would be changed by the shale gas plays several companies built facilities that could import LNG. With the glut of NG on the North American market these new facilities are no longer needed for imports. Exporting North American natural gas in the form of LNG to markets that are paying well over twice the amount we are for NG may be an attractive option for some. These import facilities can be retrofitted with cryogenic equipment without too much difficulty and turned into LNG exporting terminals.

If a few BSCFD were exported it would provide an additional revenue source but it would also mean tighter NG supplies for the US / North American NG market, causing prices to go up. Even more so when combine with lower NG drilling rates.
 CHK and others are said to be in the planning stages of exporting natural gas from North America. 


Rather than exporting it I would rather see this NG used as a domestic transportation fuel source.

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## icecold

> CHK and others are said to be in the planning stages of exporting natural gas from North America. 
> 
> 
> Rather than exporting it I would rather see this NG used as a domestic transportation fuel source.


I was at a function last week and heard Larry Nichols speak to this.  Someone basically asked if he ever saw natural gas being an exported commodity.  He said, NO.  Adding, that the cost of transportation would be too great.  Also, there are very large natural gas fields in Europe and Africa that could supply that region.  He said he has always viewed natural gas as something that we can and should use domestically.

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## ou48A

> I was at a function last week and heard Larry Nichols speak to this.  Someone basically asked if he ever saw natural gas being an exported commodity.  He said, NO.  Adding, that the cost of transportation would be too great.  Also, there are very large natural gas fields in Europe and Africa that could supply that region.  He said he has always viewed natural gas as something that we can and should use domestically.


Thanks for post the interesting opinion that you heard.

The Haynesville natural gas play maybe where exports make the most economic sense. CHK’s position in the Haynesville is very strong.

In the linked article it talks about the real possibility of US exports
The article also discusses some of the obstacles.


http://www.guardian.co.uk/business/feedarticle/9390536

“Two liquefaction plants have been proposed in the United States this year on the site of existing import terminals -- one by Cheniere Energy at Sabine Pass in Louisiana, the other by Freeport and Macquarie Group in Texas -- both of which could be online by 2015. *The potential is to initially export around 2 billion cubic feet per day of LNG from the United States overseas.”*

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## MikeOKC

CHK has kept a stiff upper lip about the latest Icahn buys. They sound so ..... err.... welcoming. They are about as happy to see this as a kid on Christmas morning with no toys.

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## kevinpate

Anybody other peeps who spend time around youngins have a mental image of a lil Bob the Shareholder wearing a CHK hardhat and shouting out
Can He Do It?  Yes ICahn!

No?  Just moi?  Ok, I'll go back to watching my videos again.

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## SkyWestOKC

In other news, Aubrey McClendon was seen bringing his underwear into the dry cleaners this morning.

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## Pete

CHK just last week announced a new strategic plan and here is a good article on their general direction, with particular points of interest show in bold:



Chesapeake Energy vs. Icahn: Round Two
By Eric Rosenbaum   01/06/11 

NEW YORK (TheStreet) -- On a Thursday during which the energy sector was left bleeding, shares of Chesapeake Energy(CHK_) managed to finish the day in positive territory and on elevated trading -- more than 16 million Chesapeake shares changed hands versus an average day of less than 12 million Chesapeake shares traded.

It's the trading of polite punches between Chesapeake and activist investor Carl Icahn, though, that had investors focused on the strategic plan announced by Chesapeake Energy on Thursday. Icahn doubled his stake in Chesapeake Energy in late December, and that led to speculation that Icahn will be seeking quick ways to make some bucks on undervalued Chesapeake. 

>>Chesapeake Energy vs. Carl Icahn: 2 Burning Questions
*If Chesapeake is undervalued, it's undervalued for a myriad of reasons related to its balance sheet and aggressive capital spending strategy, and Chesapeake took aim at all the major points of criticism from the Street and investors in the strategic plan unveiled on Thursday.*

Controversial Chesapeake Energy CEO Aubrey McClendon remained bold, if singing a different tune, when he called the new strategic plan "a fundamental shift from our aggressive asset accumulation of the past few years to a multi-year period of asset harvest, characterized by a clear focus on capital discipline and maximizing returns."

However, the problem is that the Chesapeake CEO is seen as the boy who cried "fundamental shift" many times in previous years, and then has gone back on his word, continuing to spend and lever up the balance sheet, while engaging in all sorts of complex joint ventures and production royalty payment arrangements to keep rolling the levered balance sheet up the proverbial hill.

Most notably, Chesapeake's new *strategic plan includes the goal of reducing debt by 25% over the next two years*, including a reduction of lease-hold spending and monetizing assets. This will have the effect of reducing the company's growth production target from 30%-40% to 25%, the other half of the 25/25 plan that Chesapeake unveiled on Thursday.

The expected criticism of Chesapeake's new strategic plan was immediate, even if shares finished the day up a modest 0.6%.

"*We've heard this kind of strategic talk from Chesapeake in the past, but this time it could be different because of Carl Icahn*," said Scott Hanold, analyst at RBC Capital Markets.

The presence of Icahn looming as a behind-closed-doors and annual shareholder meeting prod to change in the ways of what Argus Research analyst Phil Weiss called the "profligate spender" Chesapeake Energy, is really the only reason why investors were giving more credence to Chesapeake than after past comments about a mischievous boy mending his wayward ways.

Chesapeake Energy, though, says the new strategic plan has nothing to do with Carl Icahn.

Chesapeake manager of investor relations John Kilgallon wrote in an email to TheStreet, "We have had a strategy to significantly reduce debt in place since May 2010 and our '25/25 Plan' is simply an extension of that strategy. We are always engaged in ongoing discussions with shareholders regarding our strategy and financial plans and we believe this updated plan and reaction in our stock price today is evidence of their continued support."

It's not exactly the type of sanitized words that investors would think represents a "fundamental shift" in Chesapeake's operating philosophy as a result of the Icahn double-down investment.

RBC analyst Hanold said, "Typically guys like Icahn look to shake up a company and influence management and that's today's octane, and to that extent we could see a difference in strategy, but the bottom line is, we need to actually see it."

Again, it's going to be words versus deeds with Chesapeake Energy. 

>>Chesapeake Energy vs. Carl Icahn: 2 More Burning Questions
Phil Weiss, analyst at Argus Research, who recently downgraded Chesapeake to a sell, agreed, and added, "*We've heard things like this before from Chesapeake, only to see them reverse course in the past. Old habits die hard. I need to see execution rather than just comforting words*."

One data point that the Argus Research analyst pointed to was the rise in the Chesapeake Energy share count over the past few years.

Chesapeake said in its Thursday release that it doesn't anticipate any common or preferred share offerings as a way to raise capital.

*Chesapeake Energy's diluted share count rose from 493 million to 744 million between March 2008 and September 2010, according to Argus Research data*.

"*Saying they don't intend to issue common or preferred stock sounds encouraging, but there have been several occasions in past where they said they wouldn't issue more stock*," Weiss says.

The Argus Research analyst also takes issue with the recent "improvements" made by Chesapeake in its debt reduction plan. Chesapeake lowered its debt to assets ratio in 2010 from 48% to 43%, but the Argus Research analyst says that it was merely a function of Chesapeake offering more preferred shares, which are debt by another name.

"*If I take the preferred shares plus long term debt and short term debt, by November 2010 Chesapeake's debt to assets ratio was the highest since September 2008. They haven't reduce it at all*," the Argus Research analyst contends.

The "monetization" of assets is inherent in the 25% debt reduction plan, and that's a situation that Chesapeake watchers will monitor closely to see if, in the end, a fundamental shift is really underway.

"Twenty-five percent is a number where it would significantly reduce leverage and it's achievable in a two-year time frame, but it's going to take some asset sales. In the past Chesapeake has done some unique things, like JVs and other unconventional financings, and it hasn't been the cleanest way to monetize assets," notes RBC Capital Markets' Hanold.

The nature of monetization of assets by Chesapeake is bound to be the sticking point again, and circles back around to the hopes fanned by Icahn's sudden interest in unlocking Chesapeake value. *Speculation has risen that Icahn would try to bundle together a block of Chesapeake assets and sell them off for a quick shareholder pay day* -- and with Chesapeake at a No. 1 or No. 2 position in almost every major U.S. land drilling play it makes sense -- yet that hasn't been the approach of Chesapeake CEO McClendon in the past.

Monetization of assets isn't new for Chesapeake. It's monetized assets through joint ventures with a number of foreign players and entered into volumetric production payments (VPPS).

*Critics say that the VPPs are simply debt by another name, and the rating agencies look at VPPs this way. Furthermore, with the joint ventures, Chesapeake loses operational control of assets*.

"They don't need to have the No. 1 or No. 2 position in every single drilling play, so let's see them exit some positions," says Argus Research analyst Weiss, who remains skeptical of Chesapeake conceding to Icahn without much reluctance. "I didn't see anything in the wording of the Chesapeake strategic plan to definitively conclude that Icahn is leading them to sell assets as the approach to monetize assets," the analyst adds.

For a fundamental shift to truly be underway, *investors will have to see Chesapeake monetize assets through true asset sales as opposed to monetization through joint ventures and off-balance sheet financing*.

The Argus analyst noted that Chesapeake's plan to slow production growth to 25% could in the end simply be a function of its monetization of assets, too. If it moves more assets off the balance sheet by signing more VPPs, "it's getting paid today to take revenue and profit out of the future," and it also would lower production growth with any actual asset sales needing to occur.

Even the skeptical Argus Research analyst Weiss said that if Chesapeake achieves its debt reduction goals without additional dilutive offerings and by actually selling off assets, it would no doubt be a good thing to see. However, as has long been the case with Chesapeake Energy, actually seeing is believing, and not before then.

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## MikeOKC

Color me skeptical, but I hope for the best. This all has huge ramifications for not only CHK and their shareholders - but for our city. Thanks for posting this, Pete.

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