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Permalink Reply by Grillin' - MmmMmm on December 1, 2008 at 8:57

The big problem they are having is the money required to drill wells. They've pretty much shut down leasing for awhile. But if you had an 18-wheeler full of Big Mac's, would you pull in to every McDonalds between Shreveport and Dallas? They can't "eat" the leases they already have before they "go bad" and expire. They've go to drill-baby-drill" but that cost serious moolah. So they are putting the breaks on. But this helps on another front....will reduce production levels overall and help balance supply and demand and increase prices!

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Permalink Reply by The_Baron on December 2, 2008 at 4:44

Sounds like CHK is getting desperate for cash.


Chesapeake Wants To Print Money (CHK, BP, STO, PXP)
Chesapeake Energy Corp. (NYSE:CHK) filed three documents with the SEC on Friday. One replaces a shelf registration that expires on December 5, the second authorizes the issuance of up to 50 million shares of Chesapeake stock "in connection with the acquisition of assets, businesses or securities of other companies," and the third extends an agreement with three of its sales agents to sell up to $1 billion in shares in 2009 and beyond. Chesapeake shares dived more than 15% on the news. The first and third of these filings are pretty normal. The second, however, leaps off the page.

Chesapeake wants the ability to sell another 50 million shares? That's a dilution of a bit more than 8% on common shares outstanding at the end of the third quarter of 2008. Just the idea that Chesapeake might need that sent shivers of doubt up many spines.

After all, the company has been raising truckloads of cash by selling assets. Since March, BP plc (NYSE:BP), StatoilHydro (NYSE:STO), and Plains Exploration (NYSE:PXP) have together kicked in about $6 billion in cash for pieces of Chesapeake. Other transactions have yielded another $4 billion. How much cash does the company need?

The answer is, "A lot." Chesapeake states the problem succinctly in its third quarter 10-Q: "We anticipate that our remaining 2008 and 2009 budgeted exploration and development capital expenditures, together with other capital expenditure requirements, will exceed our cash flow from operations and our borrowing capacity under our revolving credit facilities."

The company used the cash from asset sales to repay its outstanding debt. Then, of course, it re-borrowed the money. Chesapeake has also issued more than 50 million shares of common stock this year and two debt offerings totaling more than $4.7 billion.

In it's third quarter 10-Q filing, Chesapeake noted that it was reducing capital spending for the fourth quarter of 2008 to $2.4-$2.8 billion and planned spending for 2009 would drop to the range of $7.0-$8.3 billion. That is still a lot of money, but the first thing to go would almost certainly have been additional acquisitions. That would mean no or very little growth. Thus, the filing to issue new stock to fund acquisitions.

The market remains unhappy with Chesapeake this morning. The share price is off more than 7%, to under $16. The 52-week trading range is $11.99-$74.00.

Paul Ausick
December 1, 2008

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Permalink Reply by The_Baron on December 2, 2008 at 5:09

If they keep diluting the shares you'll be able to use them as a cheap substitute for toilet paper.

Maybe they can at least afford to pay for the leases they are taking. They may have to sell those later too.

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Permalink Reply by The_Baron on December 2, 2008 at 5:45

They only make money on flipping when the hype is the highest. It will be hard to find big money unless the nat gas prices go back up.

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Permalink Reply by Grice on December 2, 2008 at 6:04

I do not think they planned on flipping investments, but had reserved that as a future option. Due to the lingering economic decline, it seems that the option has become a favorable one. From what I have read, Chesapeake has taken a more proactive position into facing the longterm estimates of the economic situation. That does not suggest they have been anything less in the past, but that they are now taking the necessary measures to tackle future potential obstacles. One could see this from either a optimistic or pessimistic view, depending on what one desires the outcome to suggest. Relying more on the source, and less on third party interest, may reduce some anxieties associated with Chesapeake's decision.

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Permalink Reply by Grice on December 2, 2008 at 7:19

Didn't Chesapeake buy into Goodrich leaseholds, not sell to them (Goodrich).

With Chesapeake having a demanding position in the HS, it seems reasonable that other companies (Plains and BP) would want to claim a stake in the play. Instead of focusing 100% leaseholds in less unproven locations, they (Plains and BP) invested in a percentage of proven grounds. Neither event indicates a "need" for money, but more of a financially sound decision for both the buyer and the seller.

Related question: If you held the position to place a claim in the HS, would you invest the time and money to prove the ground worthy of investing, or would you invest in a company that has already done most of the proving?

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Permalink Reply by nisie, not a happy camper landowner on December 3, 2008 at 6:58

My coworker heard something about CHK today. Wondered if anyone else had heard something big had happened?

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Permalink Reply by The_Baron on December 3, 2008 at 7:58

What did you hear?

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