https://investors.chk.com/2024-01-11-CHESAPEAKE-ENERGY-CORPORATION-...

How does this merger affect mineral owners in SWN operated sections? What about CHK operated sections? How do you personally feel about this merger?

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Chase, after 121 views but no replies, I'll weigh in.  I encourage members to post how they feel about this merger.  One caveat, the deal will have to be approved by regulators.

Anecdotal evidence over fifteen years is that Chesapeake is one of the hardest, if not the hardest, HA operator to deal with.  Aubrey's fast tracked leasing and willingness to bend the traditional ways of the business caused a land rush with all the competitors adopting the same short cuts.  Chesapeake left a tremendous amount of open acreage behind in their drilling units.  Then they proceeded to cheat those unleased mineral owners by ignoring the clear provisions of LA mineral law and making post production deductions just as if they were lessors.  Chesapeake wants to force every lessor to go hire an attorney to have the slightest chance of getting any response to their demands.

This could be a long list and I hope others will add to it but here is one fact that especially concerns me:  SWN does not charge a marketing charge, Chesapeake does.  And it's not an arms length transaction.  Just another means to boost the company bottom line at the expense of the mineral owners.

I miss Vine.

Thoughts on effect to near term drilling plans?

The merger is an all stock transaction.  Debt burden of the combined company is unknown.  Since SWN acquired the Haynesville assets of Indigo and GEPH, the company has had an aggressive drilling schedule.  CHK, not so much.  I think the combined company will fall in the not so much column as long as the price of natural gas is depressed.  I think the first move will be to squeeze SWN's field service companies for reduced costs.  No need to drill a lot of non-economic wells this year and maybe some portion of 2025.  When LNG export capacity increases, it will be interesting to see if there is sufficient demand to bolster prices.

I detest CHK. Shady company.

SWN is much more ethical. I hate to see this merger. I wish it would not be approved but that is probably a pipe dream.

I HATE CHK

Setting aside our feelings toward Chesapeake, I think the merger is a net positive for HS mineral right owners. As the press releases point out, this merger is a huge bet on LNG export potential, which I think we all agree the HS will be a beneficiary.  Just like with the major investments in LNG terminals, one has to think this merger required industry experts to make some big money bets on that LNG demand materializing. Like Skip has pointed out though, that demand is not guaranteed. But I am comforted that those with a lot more resources and inside information than I have believe that that demand will one day materialize. 

See WSJ article on pressure on Biden Adm to restrict future exports of LNG.

Any federal restriction on LNG capacity will have minimal impact on current export capacity and the next wave of LNG plants in the pipeline because there is a question whether that increased capacity will see sufficient demand in overseas markets where US LNG can be competitive.  Our members have followed, and we have endlessly discussed, the historical boom and bust nature of Haynesville natural gas prices.  Over production craters prices as does decreases in demand.  Building more export capacity than there is demand for will be bad for all US LNG exporters and their investors.  Haynesville operators have gotten better at managing production volumes but demand is a global issue with many potential and unforeseen ramifications.  Regulations will not shut down any operating LNG export plants.  It may require some investment in controlling methane emissions but the industry is already working on that and it won't be a surprise.  My concern is for the European market where US LNG is most competitive and future demand is uncertain.  The European market is seeing the fastest pace of renewable energy adoption and robust energy efficiency technology.  European LNG importers have cancelled some new re-gasification facilities and new natural gas storage projects.  If the European market demand decreases, US LNG will be hard pressed to compete in the other major overseas markets where Qatar and Australia have advantages that US LNG can not match.  I'm hoping that a couple of planned US LNG projects don't gain financing and that supply and demand will be in balance.  If not the chances are good that it will depress the price of Haynesville natural gas and none of us want to see that.

I have little experience with SWN, but that company operates a 10 year old HA well in Sabine Parish, so I get royalty checks from them.  Most of my royalty income is from CHK and Comstock (I have a number of small interests scattered around in DeSoto and Sabine).  Interestingly, Comstock's gas price for my royalty is always the highest.  My checks from SWN are so small, I don't pay much attention.  But for my last check, SWN paid $2.08 and CHK paid $2.16.  Comstock paid $2.65.

I don't have any sense if this merger is good or bad.  Based upon the amount of interests I own, my gas income future lies with CHK, for better or worse.

I'll look forward to discussing how drilling programs will change after the merger.  I'm thinking that the pace of drilling will slow from SWN's rapid pace to CHK's much slower pace.   At least until we see higher natural gas prices. The one factor that I am unaware of at this time is the debt load for the combined companies that must be covered by cash flow.

In a previous reply, I wondered aloud about the debt that both companies carried and wondered if SWN didn't have a much greater debt to service and that was at least one reason behind their very aggressive Haynesville drilling schedule in a period of depressed prices when other companies were reducing their pace of drilling.  This Seeking Alpha article addresses the debt for each company and explains some of the cost savings that both expect to generate.  As I thought might be the case, SWN has a debt load 3.25 times that of CHK.  The article speaks to a number of other issues with the merger which some members may find of interest.  I've provided a link at the bottom of this reply to the entire article with graphs.

Excerpt.  Chesapeake Energy And Southwestern Energy: A Big Bet On Big Savings

seekingalpha.com  Daniel Jones  Investing Group Leader

After declaring bankruptcy in 2020, Chesapeake Energy was able to shed a tremendous amount of its debt. Today, the company has net debt of only $1.25 billion. Unfortunately, Southwestern Energy is a bit more heavily leveraged than that, with net debt of $4.09 billion as of the end of the most recent quarter for which data is available. However, assuming that energy prices don't tank, management intends to target about $1.1 billion of debt retirement by the end of 2025. The combined company does not have any debt coming due until 2025 when it has to repay $389 million. So in all likelihood, the firm will make a tender offer for some chunks of its debt between now and the end of that year.

Link to full article:  https://seekingalpha.com/article/4662815-chesapeake-energy-southwes...

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