Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on November 7, 2019 at 2:41

Can't figure out why he had a "Hold" stock recommendation before this.  I would imagine that CHK is already working on one of those "pre-packaged" bankruptcies. 

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Permalink Reply by Henry on November 8, 2019 at 2:08

More ouch.  

"Shares of Chesapeake Energy Corp. bounced briefly Thursday after the oil and natural gas company’s top executives bought a total of 125,000 shares on the dip below $1 a share."

Am really supposed to believe that two officers investing a total of under $125k is a huge vote of confidence?  Compare that to Jamie Dimon's puchase of $53M in JP Morgan a few years ago.

The CEO purchased $45,740 worth of CHK stock.  What an incredibly weak show of support.  It tells me he has no confidence in his company.

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Permalink Reply by SL on November 7, 2019 at 9:35

What happens to those of us who are leased by CHK and have producing wells when they go bankrupt?

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Permalink Reply by Skip Peel - Mineral Consultant on November 7, 2019 at 9:47

If CHK follows the path of other E&P companies, they negotiate with their major creditors to create a "pre-packaged" bankruptcy plan to present to a court.  The first thing they do is ask the judge's permission to continue paying their royalty owners.  This must be done to protect their O&G leases which are the bulk of their worth.  So they continue to operate wells and pay royalty while trying to convince the judge to approve their package.  Some creditors and business relations will object.  Those creditors will take the brunt of the financial loss if the package is approved.  The investors that are part of the negotiated bankruptcy will lose some of their investment but get equity stakes in the new company going forward.  Businesses with exposure to the bankruptcy terms, especially mid-stream operators, will try to keep their existing contractual arrangements in place and CHK will try to get the court to cancel them and let the company re-negotiate a better deal.  If all goes CHK's way, the company will exit bankruptcy smaller and less in debt.  The equity owners will likely install new management that will be much more risk adverse than those that preceded them.  Mineral lessors should be okay and if CHK is successful in cutting some post production costs, they may share in that cost reduction through reduced pass through costs such as gathering, treating and transportation.  Of course, CHK will endeavor to keep their marketing arm in place to get that extra cut of profits.  Maybe mineral lessors will band together to hire lawyers to object and get the court to cancel the marketing scam.  Probably not.

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Permalink Reply by SL on November 7, 2019 at 10:43

As always, thank you Skip!

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Permalink Reply by Skip Peel - Mineral Consultant on November 7, 2019 at 10:52

You're welcome.  New management might choose to do some asset sales upon exiting bankruptcy or maybe as part of the bankruptcy plan if there are interested buyers.  I think we would all like to see CHK sell their remaining Haynesville/Bossier assets.  The new CHK would likely focus on oil and liquids and try to reduce their exposure to natural gas.

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Permalink Reply by Henry on November 8, 2019 at 14:53

Skip,

Many of CHK's wells are running on fumes, right?   What will happen to those?  Will they sell them to someone?  Or is there any chance that they walk away?  What I'm getting at is this:  Will landowners be stuck with worthless, abandoned wells on their lands?  And no one to clean them up?

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Permalink Reply by Skip Peel - Mineral Consultant on November 8, 2019 at 15:00

CHK has fewer producing wells per drilling unit than most if not all the other HA operators.  So plenty room for new wells. Through its divestitures it has retained good quality rock.  If not for the depressed price of natural gas, I think they would have sold their remaining HA assets before now.  No one wanted to pay their price.  When CHK heads into bankruptcy I think we will see interest from one or more existing LA HA operators in acquiring their units.  I would expect CHK to try and cancel their gathering agreements to sweeten the price on those assets.  I don't think CHK lessors should worry.  I think they will be the better for a change of operator.  My bets on Jerry.  

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Permalink Reply by Steve P on November 8, 2019 at 15:15

I’ll take Jerry in a heart beat.  Will also take Vine.  My family owns land in two very good sections in T12N R13W with CHK wells.  Only one well per section.  the two sections are aligned in a north/south configuration.  Prime territory for multiple CULs in two different producing zones, ready to drill.

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Permalink Reply by Skip Peel - Mineral Consultant on November 8, 2019 at 15:23

CHK has divided their remaining LA HA units into two categories/areas.  The one Steve refers to is the 10,000' lateral area (two units stacked north to south).  The one further north and west is the 15,000' lateral area (three units stacked north to south).  Unless CHK chooses to split those two areas I think one buyer gets their entire holdings.  It's not out of the question that a buyer could choose to sell some chunks to other operators as "bolt on" acquisitions.  I can't see any way it works out that is not an improvement for CHK lessors.

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Permalink Reply by Steve P on November 8, 2019 at 15:46

Without making an obvious comment on the social implications of the fact that is is a Friday night and I’m sitting here on my Ipad reading and posting comments on GHS, I agree with Skip, although my experience is limited to dealing with CHK, Comstock, Vine and GEP.  Comstock has been the most “stand-up” operator I’ve dealt with, followed fairly closely by Vine.  Some issues with GEP, lots of issues with CHK.

For my own self-serving mind-set, it is in the upper 20’s here in western NC, and I do have a nice roaring fire going.  Way too cold for a person to be “out and about” this time of night, regardless of what night of the week it is.

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Permalink Reply by Skip Peel - Mineral Consultant on November 8, 2019 at 15:52

Throw another log on the fire and expand a little if you will on your GEP issues please, Steve.

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