Icahn Offers a Hedge for Chesapeake Energy

[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.

[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.

[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.

[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.

[onthestrip]

Thanks chesapeake cheerleader, keep keeping me informed

[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.

[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/

[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.

[Rover]

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

[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.

[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.

[Spartan]

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

[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.

[G.Walker]

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

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

[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

[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

[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.

[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.

[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.

[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.

[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.”

[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.

[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.

[SkyWestOKC]

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

[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.