Expand Energy (Formerly Chesapeake)

[MikeOKC]

The good with the bad and all the in-betweens. Fox Business finds this interesting:
http://www.foxbusiness.com/news/2012...-1-bcf-filing/

Who would have thought just a few months back that CHK would be having to cut back on natural gas production by one billion cubic feet a day? The effort to halt plunging gas prices is just....ironic is the word that comes to mind.

[Oil Capital]

The good with the bad and all the in-betweens. Fox Business finds this interesting:
http://www.foxbusiness.com/news/2012...-1-bcf-filing/

Who would have thought just a few months back that CHK would be having to cut back on natural gas production by one billion cubic feet a day? The effort to halt plunging gas prices is just....ironic is the word that comes to mind.

While one billion cubic feet a day sounds huge, especially when italicized ;-) according to the linked article, it constitutes only 1.5% of Cheaspeake's daily natural gas production.

[MikeOKC]

While one billion cubic feet a day sounds huge, especially when italicized ;-) according to the linked article, it constitutes only 1.5% of Cheaspeake's daily natural gas production.

And 1.5% of CHK daily production is a lot of natural gas. If it wasn't a significant amount, it wouldn't be seen as way to drive down supply, no?

[Oil Capital]

And 1.5% of CHK daily production is a lot of natural gas. If it wasn't a significant amount, it wouldn't be seen as way to drive down supply, no?

Nobody's arguing. Just wanted to put the number in perspective.

Also, after a little research, it appears that the Dow Jones Newswire piece posted on Fox Business (linked above), may have misstated the fact. I think Chesapeake's 1 Billion cubic foot per day reduction probably constitutes 1.5% of the lower 48's total natural gas production, not just Chesapeake's. Obviously, that makes the reduction a lot more significant.

[MikeOKC]

Nobody's arguing. Just wanted to put the number in perspective.

Also, after a little research, it appears that the Dow Jones Newswire piece posted on Fox Business (linked above), may have misstated the fact. I think Chesapeake's 1 Billion cubic foot per day reduction probably constitutes 1.5% of the lower 48's total natural gas production, not just Chesapeake's. Obviously, that makes the reduction a lot more significant.

You know, I think you're absolutely right. That is an error. I didn't realize when I was reading that at Fox Business that it was really a DJN piece. That went to a lot of DJN subscribers in the media. But you're right - that's wrong.

[MikeOKC]

Yep. Too bad that News Corp got it wrong as that goes out to so many. Dow Jones is Murdoch, Wall Street Journal is Murdoch, Fox Business is, of course, Murdoch. I see more and more errors from them on business matters and that's a shame.

CHK said it was all production in the lower 48 back in January and the Associated Press got it right today:

The Oklahoma City-based company said In January that it will cut back production by 1 billion cubic feet per day, equal to 1.5 percent of natural gas production in the lower 48 states. http://www.miamiherald.com/2012/02/2...ning-more.html

Good catch, OC.

[ou48A]

Apparently CHK has no natural gas hedges in place.
With so much exposure to low NG prices what will be the impact of no NG hedges ?

[MikeOKC]

CHK is one of the most confusing stocks for analysts. It's hard to blame them. A couple of majors downgraded them to either "hold" or "sell" today.

The Best Reason to Sell Chesapeake Shares

[jn1780]

If Chesapeake fails its because of a global economic depression. "Living on edge" is the cool thing to do nowadays and is not isolated to Chesapeake.

[MikeOKC]

If Chesapeake fails its because of a global economic depression. "Living on edge" is the cool thing to do nowadays and is not isolated to Chesapeake.

I'm sorry, but that's just ridiculous. No, of course it's not "just" Chesapeake, but actually most corporations have taken a decidedly conservative approach since '07. Right here in Oklahoma City we have a perfect example - is Devon "living on the edge" by paying cash for their downtown tower? CHK is mismanaged, is considered mysterious and enigmatic by observers for the creative bookkeeping, the seeming debt correction for a year or so (only to be reversed), pushing fracking to the point of oversupply and then having to sell off assets just to stay afloat? CHK is a flagrant outlier among U.S. corporations in its daily operations - and there's nothing "cool" about it.

[jn1780]

I'm sorry, but that's just ridiculous

The current economic environment is ridiculous that's for sure. Yet somehow it keeps going.

but actually most corporations have taken a decidedly conservative approach since '07.

So they say. Conservative compared to what exactly? The new standard where the Government is a big part of the economy? Hey, I guess CNBC needs to attack someone to appear credible.

CHK is mismanaged, is considered mysterious and enigmatic by observers for the creative bookkeeping, the seeming debt correction for a year or so (only to be reversed), pushing fracking to the point of oversupply and then having to sell off assets just to stay afloat? CHK is a flagrant outlier among U.S. corporations in its daily operations - and there's nothing "cool" about it.

A logical economic argument. Nothing about this economy is logical anymore, however.

and there's nothing "cool" about it.

I agree its not cool.




As long as there's a government pumping hot money into the economy in order to ensure that the economy remains "saved" Chesapeake will find a way to survive. I'm sure it will take even more in hot money in the future to keep the economy going and I doubt it will all stay in oil. Speculators just need one reason to start moving it into natural gas. The irony is that this hurts more conservative businesses in other industries more than it does Chesapeake.

With that said I go back to my original statement, "Chesapeake will somehow find a way to keep going unless there's a major economic depression." Not that I agree this is how it should work this is just how I feel the economy operates today. Time will tell however.

[mugofbeer]

CHK is one of the most confusing stocks for analysts. It's hard to blame them. A couple of majors downgraded them to either "hold" or "sell" today.

The Best Reason to Sell Chesapeake Shares

Starmine analyst rankings show Chesapeake at a 7.6 which is a decidedly bullish rank. This is a composite of stock analysts covering the stock based on historical accuracy of their ratings. Chesapeake has dropped below 21 in recent weeks but has rebounded to above 25. No one is very concerned about the viability of the company in upcoming months, just that it is in the middle of a conversion to liquids while cutting back on gas production due to the extremely low price of gas. Sorry, Mike, I don't think CHK is the best managed company on the planet either but it's not going belly up anytime soon.

[MikeOKC]

Starmine analyst rankings show Chesapeake at a 7.6 which is a decidedly bullish rank. This is a composite of stock analysts covering the stock based on historical accuracy of their ratings. Chesapeake has dropped below 21 in recent weeks but has rebounded to above 25. No one is very concerned about the viability of the company in upcoming months, just that it is in the middle of a conversion to liquids while cutting back on gas production due to the extremely low price of gas. Sorry, Mike, I don't think CHK is the best managed company on the planet either but it's not going belly up anytime soon.

I don't think anything horrible will happen soon and I hope it never does. I'll say it again - a healthy Chesapeake is CRUCIAL to the future of our city.

I've heard it said more than once that stock analysts find Chesapeake one tough cake to bake. It's just not easy to figure out. This past week, we saw some yells to buy, yes; but there's a lot of serious analysis that says sell (or hold) and analysis of CHK, as you know, changes on a dime. Just like the company.

[OKCTalker]

I've heard it said more than once that stock analysts find Chesapeake one tough cake to bake. It's just not easy to figure out. This past week, we saw some yells to buy, yes; but there's a lot of serious analysis that says sell (or hold) and analysis of CHK, as you know, changes on a dime. Just like the company.

Last fall's Forbes article mentioned that CHK intentionally OVER-discloses information, which has the ironic result of misleading analysts and providing cover for CHK to say, "Don't say we didn't tell you." The Forbes writer made a direct comparison with Enron in the disclosure of their complicated investment structures which almost no-one could figure out until later.

[Pete]

I have a very hard time understanding what CHK is doing and I imagine the average investor feels the same way.

They have a very complex web of entities, relationships and financial dealings.

[MikeOKC]

Last fall's Forbes article mentioned that CHK intentionally OVER-discloses information, which has the ironic result of misleading analysts and providing cover for CHK to say, "Don't say we didn't tell you." The Forbes writer made a direct comparison with Enron in the disclosure of their complicated investment structures which almost no-one could figure out until later.

That's exactly right. When there's bad news or figures to report, like in politics, it's in Friday afternoon "news dumps" and reports that are several fine-print pages longer than the usual corporate reports. Then, when you ask about it, it's usually kicked to PR or legal who, with a big smile, says they "don't talk about that or provide analysis" and after all, all the information is - right there! Somewhere.

[BorisYeltsin]

The interesting thing is how much Fracing has actually caused the price of natural gas to fall, because it produces so much natural gas.

Also no company is taking over a company w/ $10 billion in debt

[BillyOcean]

^^^^^^^^^^^^^
XOM did when they acquired XTO.

[BoulderSooner]

^^^^^^^^^^^^^
XOM did when they acquired XTO.

yep .. and as long a CHK and 68 Billion in assets .. the 12bil in dept is not that big of a deal

[onthestrip]

yep .. and as long a CHK and 68 Billion in assets .. the 12bil in dept is not that big of a deal

The $68 bil in assets is probably highly debatable. And it cost tons of money to keep those assets as well as bring them to market.

[OkieHornet]

got my new rolling stone in the mail and noticed this article in it about chesapeake and aubrey mclendon:
http://www.rollingstone.com/politics...-boom-20120301

[onthestrip]

Chesapeake has already responded with a letter disputing some of the writers claims. I believe Chesapeake tweeted it so you might find it on their feed. Seems like they are constantly having to fight PR battles.

[Pete]

Thanks for sharing that article -- very interesting.

Rolling Stone is of course a very liberal publication and you could argue the author went into this piece with an agenda, and that notion is reinforced by the multiple comments about the conservative causes supported by McClendon.

Still, there is lots here to find scary, particularly this:

Fracking, it turns out, is about producing cheap energy the same way the mortgage crisis was about helping realize the dreams of middle-class homeowners. For Chesapeake, the primary profit in fracking comes not from selling the gas itself, but from buying and flipping the land that contains the gas. The company is now the largest leaseholder in the United States, owning the drilling rights to some 15 million acres – an area more than twice the size of Maryland. McClendon has financed this land grab with junk bonds and complex partnerships and future production deals, creating a highly leveraged, deeply indebted company that has more in common with Enron than ExxonMobil. As McClendon put it in a conference call with Wall Street analysts a few years ago, "I can assure you that buying leases for x and selling them for 5x or 10x is a lot more profitable than trying to produce gas at $5 or $6 per million cubic feet."

According to Arthur Berman, a respected energy consultant in Texas who has spent years studying the industry, Chesapeake and its lesser competitors resemble a Ponzi scheme, overhyping the promise of shale gas in an effort to recoup their huge investments in leases and drilling. When the wells don't pay off, the firms wind up scrambling to mask their financial troubles with convoluted off-book accounting methods. "This is an industry that is caught in the grip of magical thinking," Berman says. "In fact, when you look at the level of debt some of these companies are carrying, and the questionable value of their gas reserves, there is a lot in common with the subprime mortgage market just before it melted down."

And this:

In recent years, the company has also sold off the future proceeds it expects to receive from thousands of wells – a complex financing deal that enables it to borrow cash now without counting the debt it will owe when it has to drill the wells later. The very first deal, made with Deutsche Bank and a Swiss investment firm, brought Chesapeake more than $1 billion in return for 15 years of future production from 4,000 wells. "It's not illegal, but most gas and oil companies don't do it," says Bob Brackett, an analyst with Sanford C. Bernstein & Co. "Chesapeake's poor credit rating pushes them to turn to unconventional financing."

To make its operations even riskier, leaseholders like Chesapeake are required by law to drill on the land within three to five years after acquiring the rights or wind up forfeiting the lease. "The more land they acquire, the more capital they have to spend upfront," says Deborah Rogers, a former investment banker who learned just how precarious Chesapeake's business model was when she looked into the firm's financial statements after the company sunk wells near her property in Texas. "Then they have to drill it or lose it, which further adds to capital costs. And the more they drill, the more gas they produce, which lowers the price of gas and further reduces their revenues. In the end, this drilling treadmill is difficult to sustain for long – especially if the wells under*perform, or the resource turns out to not be as valuable as they thought."

[Easy180]

Umm yeah very scary...Like I said before these guys remind me of good old CFS...Just about everything with this company does not pass the smell test

[MikeOKC]

The ponzi scheme reference has been made numerous times since the New York Times investigation. If it's not...it's awfully close to it.

For me, it's just more head shaking. I agree with Pete about the agenda from the writer, it is Rolling Stone as he pointed out. There's still a lot to chew on though. With Aubrey McClendon - you just never know.

Other CHK news...I don't think it was mentioned here...

The EPA handed off an expected investigation in West Virginia to the Department of Justice. CHK is facing environmental CWA penalties, but could now be looking at possible federal criminal charges. Just more outlaw behavior from CHK.

CBS News: Chesapeake Energy facing DOJ Investigation