Replies to This Discussion

Permalink Reply by Lerret on October 13, 2008 at 14:10

Just a guess, but if CHK paid out $20K+ per acre, they will find a way to make use of that land before the lease expires whether it's one of their rigs or one leased from another company. Am I off base in this mode of thinking?

Second guessing a company in the present economic environment is not possible. There is an issue that if we have a mild winter, gas supply has outstripped storage and prices will drop. The second issue is the companies themselves. CHK is heavily leveraged and is an enormous risk. One risk they probably didn't factor in was the financial meltdown world wide. That has led to lower demand for natural gas. People are cutting back.

Further, while CHK drills more wells and produces the most gas, their finding costs are very high compared to many companies (like Devon). If gas prices fall to $5 an MCF, they will hemmorage money. IF $5 gas goes on for over 2 years. CHK makes money by hedging gas - the one thing they are good at, except busting deals and data mining other companies drilling permits [that is they will try to rush into an area being unitized and offer skyhigh lease bonuses to the holdouts..mainly because they are too incompetent to find gas that someone else hasn't already.] If gas prices stays low and CHK sells gas at market (instead of the hedge price) they will go bankrupt period.

From the press release I read, CHK will lay off 1000 landmen (contractors or not) and they will cease leasing in PA and W VA for the Marcellus due to the lack of pipeline capacity. They have never liked the Rockies. The Barnett is also seeing much reduced activity. Outside the core Barnett area the results have been marginal. Fayetteville is also becoming an area of concern due to the cost:income ratio...and not just for CHK. SEECO's stock (SWN) has tanked as well. I certainly wouldn't be a buyer of either one's stock

BTW, that reminds me. If you LEASE to CHK or SWN or DEV...for crying out loud, DON'T BUY THEIR STOCK WITH YOUR LEASE OR ROYALTY MONEY!!! Buy someone else's....that's like selling your farm to someone who is bankrupt and carrying a second mortgage for 90% of the money. IF they go down, you lose on both ends.

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Permalink Reply by Grillin' - MmmMmm on October 17, 2008 at 4:44

Lerret: your knowledge of CHK's financial condition is severely lacking. Currently they have 80% of their gas hedged for 08/09 and 65% for '10. At $8.50-9.00. So they aren't that worried about prices over that time.

Will they go bankrupt? Almost 99.9% certainty they won't. Why? they have more than enough cashflow to pay their debt and pay their operating bills. All they have to do is slow down their drilling. That's really all. They are spending more than the make, but they are spending on things that are easy to shut down.

Also, in the Haynesville and Fayetteville, Plains and BP, repsectively, will be paying for a huge portion of CHK's drilling costs. The first $1.8 B in EACH field will be paid for. That's for CHK's remaining 75% WI, not the 25% that the two companies bought.

You will see them slow down their drilling capex and their leasing activity...confirmed in their investor conference over the last 2 days. That will bring their cashflow in line. The rate of production growth will 'only' by 10-15%...gollee that's horrible!! Considering XOM's is negative!

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Permalink Reply by adubu on October 13, 2008 at 15:13

A lot of the leases are HBP so no time frame to drill to hold leases. Only need to drill one well per 640 acre unit to hold the 640. They will be able to drill enough wells to hold the leases. Then take there time to do infield drilling over the next 15-20 years.

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Permalink Reply by mary on October 17, 2008 at 6:09

According to what I hear, the current applications to the state commissioner to increase unit sizes from 640 to 920 acres on the LA/Texas border is just the beginning of an effort to increase (ALL) Haynesville Shale units to 920 acres.

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Permalink Reply by Kenny on October 13, 2008 at 14:55

Well I hope greed has not gotten the best of some of you guys, I said it a long time ago, all good things come to an end, especially in the oilfield. Until Natural Gas becomes a supply and demand, which may take 10-20-30 years, things are fixing to come to a screeching halt

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Permalink Reply by Snake Stewart on October 13, 2008 at 15:00

Well Hello Kenny ole boy.I am glad the Saudis havent fed you to the lions yet ! HA!HA! How are you? We havent heard from you in a while.Sure have missed that sunny disposition of yours.(LOL)

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Permalink Reply by Kenny on October 13, 2008 at 15:04

Hey Snake, I'm still here--just been very busy over on this side of the planet. Looks like things are starting to settle dwon a bit there

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Permalink Reply by Snake Stewart on October 13, 2008 at 15:14

Settle down ! Snail races have more action in them then the broke %*^ O&G's around here.Pink slips are flying at rookie lanmans' like confettie at a New Years Eve party in downtown New York City. Lifestyles of the not so rich and very famous for some around here that made their beds early on with O&G's at the expense of their neighbors.
I bet you aint doing much better over there! How much are those turbins costing you now that you have to wear?HA!HA! Just kidin' Kenny ole boy, they probably supply you with head wear dont they.

P.S. Keep your eyes up and your head down. 99% of that country hate your guts man. Be safe!

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Permalink Reply by Kenny on October 15, 2008 at 3:22

Yeah, the sad part is they are purchasing the head wear with the money we send these bastards , where else can you go to a shopping mall and snow ski---it's absolutley crazy

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Permalink Reply by Weto on October 13, 2008 at 15:48

Where do you get your information? Or are you going on what is going on with the stock market. These companies are huge and I think that you are starting a rumor that is not true. Publicly traded companies are down just as others, however these companies also own companies that are not publicly traded and still doing business. We had a landman tell us this a while back. This was a way to dismiss instead of telling us that they were not interested in our land. The truth is, these companies are only looking at areas where they have the majority of the mineral acres. The do not want to negotiate with another O & G company to buy the lease from them just so they can form a production unit of 640 acres. They also need to get the price down....the lease rate went up to fast. When this started in May 2008 for us, the offer was 3500/acre and within it shot up to 15,000. Folks must remember that this is just a bonus, the true $$$ is in royalty. Holding out only delays your change at ongoing revenue.

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Permalink Reply by RL on October 14, 2008 at 4:39

In the Southern Hills coaliton, only Section 10 (161410) got an offer. What about the other sections, 9 and 15, I think? Are any other groups interested in picking them up?

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Permalink Reply by The_Baron on October 14, 2008 at 4:47

Word on the street is that petrohawk intends to scale back on its leasing. They are going to try and lease out the units they already intend to drill. They will make a final offer to unleased parties, those who do not lease at that time will be force pooled.

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