Icahn Offers a Hedge for Chesapeake Energy

[Spartan]

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

[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.

[Spartan]

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

[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.

[soonerguru]

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

[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.

[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.

[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.

[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."

[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.

[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.

[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.

[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.

[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.

[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.

[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.

[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.

[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.

[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.

[Pete]

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

[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!

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.

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.

[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...

[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.

[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.

[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.